Li Lu

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Biography

Li Lu was born in China in 1966 and came to the United States as a student, arriving with no money and no English-language network. At Columbia University he earned three degrees simultaneously — a B.A., a J.D., and an M.B.A. — a feat of sheer intellectual force that Munger never tired of citing. A lecture by Warren Buffett at Columbia in 1993 showed him that investing could be practiced as a rational craft, and after a brief period on Wall Street he founded Himalaya Capital in 1997.

Himalaya's method was the Berkshire philosophy applied with total fidelity: deep research, extreme concentration, long holding periods, and complete indifference to benchmarks. What distinguished Li Lu was where he fished. He focused on China and Asia at a time when almost no American value investor would touch the region, buying wonderful, strong companies at prices the U.S. market had not seen in a generation. His returns made him, in Munger's words, "the most successful investor in the whole damn room" at the 2020 Daily Journal meeting.

Munger backed Li Lu with his own family's money when Himalaya was a small private partnership — the only outside investment manager Munger ever hired in ninety-five years of life. Through Li Lu, Munger was introduced to BYD and its founder Wang Chuanfu, an introduction that produced one of Berkshire's most profitable investments of the modern era. The relationship, begun as patronage, matured into what Munger described as genuine friendship and intellectual kinship.

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Key Stories

The only outside manager. Munger repeated the fact so often, and in such nearly identical terms, that it became a set piece of his late-career meetings: "In my life, I've given money to one outside manager, and that's Li Lu. No others in my whole life. And I have no feelings that it would be easy to find a second." In 2019 he made the same point with characteristic humor: "I'm ninety five years…I've given Munger money to some outsider to run once in ninety five years. And it's Li Lu, and of course he's hit it out of the park." The singularity matters: Munger spent decades telling audiences that almost all professional money managers were not worth their fees, and then named the single exception.

The three-stock family portfolio. Asked at the 2017 Daily Journal meeting whether he was comfortable with a non-diversified portfolio, Munger answered by disclosing his own: "The Mungers have three stocks. We have a block of Berkshire, we have a block of Costco, we have a block of Li Lu's Fund, and the rest is dribs and drabs. So am I comfortable? Am I securely rich? You're damn right I am." That Li Lu's fund stood beside Berkshire and Costco as one of the three pillars of the Munger family fortune is the most concrete endorsement in the entire corpus.

Fishing where the fish are. Munger's explanation of Li Lu's edge was never mystical. At the 2019 Daily Journal meeting he asked, "Why does Li Lu succeed so mightily? Well partly he's sort of a Chinese Warren Buffet. That really helps. And partly he's fishing in China! Not in this over-searched, over-populated, highly competitive American market." Li Lu, Munger said, simply went where the fishing was good, while everyone else tried to catch cod where the fish had been fished out. The talent mattered — "He's ferociously smart... he's willing to patiently wait and then aggressively pounce" — but the pond mattered too.

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Impact on Munger's Work

Li Lu's first impact on Munger was validating. Munger had argued for decades that his method was transferable — that a person of the right temperament, armed with the right models, could outperform almost all professionals. Li Lu was the proof case walking around in the world: someone who had internalized the philosophy so completely that Munger described him as a Chinese Warren Buffett, and who then compounded the Munger family capital at rates that justified every speech.

The second impact was geographic. Munger's circle of competence had never extended naturally to Chinese industrials; Li Lu's did. Through him came the BYD investment — first in Li Lu's own fund, then $232 million of Berkshire's money in 2008 after Munger pressed the case with Buffett, and later a position for the Daily Journal. Munger was explicit about the chain of causation: "that was a venture capital type investment. We bought marketable securities, not Berkshire, but Li Lu did. And it's been a wonderful investment."

The third impact was structural. Li Lu became Munger's standing example in two distinct arguments: that you should concentrate decision power in one person rather than "hire armies of people to make conclusions," and that the way to evaluate any new manager is to compare him against your best existing alternative. "Once I've got Li Lu if I'm comparing to him, who else am I going to pick?" Munger asked in 2019. "That's a good way to make decisions and that's what we do." The Li Lu standard thus became an operative part of Munger's own opportunity cost framework: every new option must beat the best option already in hand.

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Key Passages From Munger's Speeches and Letters

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Referenced In

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Source: Charlie Munger Knowledge Base — Munger speeches, Wesco Financial annual letters, DJCO annual meeting transcripts