4 Li Lu’s investment principles alongside Warren Buffett and Charlie Munger

Li Lu, also known as “China's Warren Buffett,” is a highly successful value investor. Known for his contrarian approach and emphasis on long-term compounding investing, he shows many similarities to Buffett's philosophy.

Himalaya Capital Investors, a value investment firm led by Li Lu, is said to have achieved an astonishing 30% compound annual return since its founding in 1998. Due to this track record, relatively unknown investors include Warren Buffett, Charlie Munger and Peter Cundill.

Mr. Li Lu shares many similarities with Mr. Buffett's investment philosophy.

Focus on value:Both Li Lu and Buffett adhere to the principle of establishing a “margin of safety” and acquiring stocks well below their intrinsic value to protect against potential losses.

expanded field of view:Both Li Lu and Buffett favor a long-term investment approach, prioritizing a company's fundamental strength over short-term market fluctuations.

Emphasis on quality:While prioritizing value, both companies emphasize the importance of investing in high-quality businesses that have strong competitive advantages and can withstand external moat.

circle of ability: It is important to have a comprehensive understanding of the business, and when it comes to investing, only venture into areas in which you have a high level of knowledge and expertise.

Mr. Li Lu also brings unique insights from his experience in emerging markets such as China. Below are some of the main investment principles that contributed to his impressive profits.

Accurate and comprehensive information: Mr. Lu emphasizes the importance of thorough research and thorough due diligence before making any investment decisions. This includes not only financial data, but also qualitative factors such as company culture, leadership, and competitive environment. He is known for going to great lengths to gain a deep understanding of a CEO's personality, including visiting local areas and talking to neighbors.

safety range: Mr. Lu advocates establishing a margin of safety and acquiring stocks well below their intrinsic value to reduce potential downside risk. This involves identifying companies with strong fundamentals and competitive advantages that are trading at a discount to their actual value. Adhering to this principle increases your chances of achieving significant profits over the long term.

Durability and consistency: Value investing often requires a long-term outlook and the ability to withstand market volatility. Mr. Lu emphasizes the importance of maintaining patience and discipline, maintaining investments despite market fluctuations, and resisting the urge to sell hastily during downturns.

independent thought: Mr. Lu encourages investors to think independently rather than just following the crowd. He argues that contrarian thinking and independent research can reveal hidden gems that the market is missing. By avoiding herd mentality and doing your due diligence, you may find opportunities for extraordinary returns.

Although not explicitly stated as a guiding principle, Lu's investment philosophy relies heavily on the potential for compound interest. By investing in high-quality businesses that show solid growth potential and maintain a long-term perspective, you can take advantage of the effects of compound interest and accumulate significant wealth over time.

Li Lu is known as an exemplary value investor with a unique style and focus. Comparing your investment approach to his strategy provides valuable insight into the subtleties of value investing and highlights the importance of tailoring it to diverse situations.