In the early 2000s, Charlie Munger–Warren Buffett's longtime business partner – made an unexpected decision. He handed almost $90 million of his family's fortune to a 38-year-old investor named Li Lu.
At the time, Li was a rising star in the investment world, often called the "Chinese Warren Buffett." What followed was remarkable. That initial investment grew into about $400 million, showing just how successful that decision was.
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Li Lu, the founder of Himalaya Capital, had a reputation for applying the value investing principles of Ben Graham, similar to Munger and Buffett. Instead of focusing on the crowded American market, Li turned his attention to Chinese stocks, where he saw immense potential. Munger once remarked, "We made unholy good returns for a long, long time," reflecting on the success of his decision to entrust Li with his family's wealth. Munger noted that the initial $88 million investment had grown four or five times.
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One of Li's most notable moves was his early investment in Kweichow Moutai, a brand of distilled liquor that became China's national drink after the communist revolution. Li recognized its potential while it was trading cheaply, at just four to five times its earnings. He went all in, buying as much stock as possible – a decision that paid off tremendously as Moutai became one of China's largest listed companies. In a Financial Times article, Munger praised Li's foresight: “He just backed up the truck, bought all he could and made a killing."
Li's relationship with Munger goes beyond just money management. In a 2019 Daily Journal Corporation meeting, Munger reflected on how rare it was to trust an outsider with his money, saying, "I'm 95 years old. I've given Munger money to some outsider to run once in 95 years. That's Li Lu." Munger saw something unique in Li, a combination of strategic thinking and an ability to seize opportunities others might overlook.
Li's investment journey wasn't without challenges. He fled China after the Tiananmen Square protests and eventually found refuge in the U.S., where he earned degrees from Columbia University. His early struggles shaped his investment philosophy, but what set him apart was his ability to turn adversity into opportunity. Despite the obstacles, Li built Himalaya Capital into one of the most successful China-focused investment funds, headquartered in Seattle.
Li often praised Munger's mindset, saying that even in the face of challenges, Munger never seemed pessimistic or defeated. He admired Munger's ability to remain rational and composed, embodying the Chinese saying, "One should neither be pleased by external gains nor saddened by personal losses."
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With Munger's guidance, Li reorganized his fund and eliminated many of the flaws typical of hedge funds. This allowed him to focus on long-term investments without the constant pressure to show monthly returns. From 2004 to 2009, Li's fund achieved an annual compound growth rate of 36%; over 12 years, the capital grew more than 20 times.
The partnership between Charlie Munger and Li Lu is a prime example of what can happen when trust and shared values come together in investing. Munger's choice to entrust a significant chunk of his family fortune to Li Lu, an "outsider" by most standards, might have seemed like a gamble to some, but it turned out to be a brilliant move. Their collaboration highlights that true success goes beyond just crunching numbers – it's about long-term vision and trusting the right person to steer the ship.
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© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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