In the dawn of the 21st century, a pivotal moment unfolded in the realm of high finance. Charlie Munger, the trusted partner of Warren Buffett, made a bold decision that would alter the course of his family’s fortune. He entrusted a staggering $90 million to Li Lu, a 38-year-old investment virtuoso dubbed the “Chinese Warren Buffett.” This calculated risk would yield astonishing returns, swelling the initial investment to a whopping $400 million.
Li Lu, the mastermind behind Himalaya Capital, was renowned for his unwavering commitment to value investing principles, echoing the wisdom of Ben Graham. Instead of chasing the crowded American market, Li set his sights on the untapped potential of Chinese stocks. This contrarian approach would prove to be a stroke of genius.
Munger would later reflect on the remarkable success of his decision, noting that the initial investment had grown four or five times, yielding “unholy good returns” over an extended period. One of Li’s most astute moves was his prescient investment in Kweichow Moutai, a brand of distilled liquor that would become China’s national drink. Li recognized its immense potential when it was trading at a modest four to five times its earnings, and he seized the opportunity with unbridled enthusiasm.
Munger would later praise Li’s foresight, remarking, “He just backed up the truck, bought all he could, and made a killing.” Their partnership transcended mere money management; it was a testament to the power of trust and shared values in the world of investing. Li’s ability to turn adversity into opportunity, coupled with his strategic thinking, had earned him a special place in Munger’s esteem.
Despite facing numerous challenges, including fleeing China after the Tiananmen Square protests, Li persevered, earning degrees from Columbia University and building Himalaya Capital into a powerhouse investment fund. His investment philosophy was shaped by his early struggles, and he often drew inspiration from Munger’s unflappable optimism and rationality.
Under Munger’s guidance, Li reorganized his fund, eliminating the flaws typical of hedge funds and focusing on long-term investments. This bold move would yield an annual compound growth rate of 36% from 2004 to 2009, with the capital growing more than 20 times over 12 years.
The extraordinary partnership between Charlie Munger and Li Lu serves as a beacon of what can be achieved when trust, shared values, and long-term vision converge in the world of investing. Munger’s decision to entrust a significant portion of his family’s fortune to Li Lu, an “outsider” by most standards, was a calculated risk that would ultimately yield a staggering return. Their collaboration stands as a testament to the power of trusting the right person to steer the ship, even in uncharted waters.
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