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Li Lu On What He Has Learned From Charlie Munger

Li Lu is one of the world’s most under-appreciated value investors in my view. While most investors are aware of Warren Buffett and Charlie Munger,  both of whom Li Lu learned from, Li Lu is less well-known even though he moves in the same circles.

According to various sources, Li Lu’s firm, Himalaya Capital Investors L.P., has produced an annual return for investors of more than 20% since its founding in 1998, this puts the value investor in the same league as Buffett and Munger regarding returns.

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Li Lu has always been interested in trying to learn more from his mentors Buffett and Munger and, to this end, he’s translated Charlie Munger’s Memoir Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger into Chinese. Li also wrote a foreword to the text in which he summarises his views on Munger. This is useful not only as a guide into the mind of one of the greatest investors and thinkers alive today, but it also contains some interesting insights into Munger’s investment process. For example:

“When Charlie thinks, he always Starts by inverting. To understand how to be happy in life, Charlie will study how to make life miserable. To examine how businesses become big, strong and successful, Charlie first studies who businesses decline and fall. When most people care only about how to succeed in the stock market, Charlie is most concerned about why most fail in the stock market. His way of thinking comes from the saying in the Farmer’s philosophy: ‘All I want to know is where I’m going to die so I never go there.'”

To put it another way, Charlie Munger solidly believes that the best way to succeed in life is to find out what stops most people from being successful, and avoiding whatever that is:

“Throughout his life, Charlie has been constantly collecting and researching the notable failures in each and every type of person, business, government and academic research. He then arranges the cause of failures into a checklist for making the right decisions. Because of this, he has avoided major mistakes in his decision-making over his life and career. The importance of this on the performance of Buffett and Berkshire Hathaway over the past 50 years cannot be emphasized enough.”

Ever since Munger first pushed Buffett to acquire See’s Candies, it is clear that he had a substantial impact on Buffett’s way of thinking and managing Berkshire Hathaway. I think it’s interesting to speculate how much of an impact Munger has had on Buffett and vice versa. Buffett has made some costly mistakes, and his career, including the purchase of Berkshire in the first place, and some of these Munger has openly criticised. If Buffett had listened every time, is it possible that Berkshire Hathaway would be even larger than it is today? We will never know.

” Charlie’s mind is original and creative. It is never restrained by rigid rules or doctrines. He has the insatiable curiosity of a child and possesses the qualities of top-notch scientists and their scientific methodologies. He has had a strong thirst for knowledge throughout his life and is interested in practically everything. To him, with the right approach, any problem can be understood through self-study. Further innovations can be built on the foundations laid by the intellectual forefathers. In this matter, he is very much like Benjamin Franklin.”

Us mere mortals can learn a lot from Munger’s approach to investing and life. Munger has always kept an open mind and acknowledges that the human mind has weaknesses and blind spots. Therefore, he’s always on a journey of continuous improvement, acknowledging his faults and looking for new ways to learn more about the world, improve his understanding and fill in the blanks. Everyone makes mistakes but its the ability to learn from mistakes and avoid repeating them is what separates the average person from highly successful people such as Buffett and Munger.

“Everyone has blind spots, and even the brightest people are no exception. To quote Buffett, ‘ Benjamin Graham taught me to only buy statistically cheap stocks, and Charlie allowed me to change my thinking. That’s the real impact Charlie had on me. I needed a powerful force to break the well-entrenched limitations imposed by Graham’s theories. Charlie’s mindset was that source of power. He expanded my horizons.’ I have also had this profound experience. With at least two important issues, Charlie pointed out the blind spots in my thinking. If it weren’t for his help, I would still be in the process of evolution from ape to human. Over the past 50 years, buffered has emphasized repeatedly that Charlie’s impact on him and Berkshire is irreplaceable”

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