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THE NEW YORK OBSERVER

Tiananmen Square to Wall Street:


Li Lu Hits the New York Jackpot
By Carrie Cunningham
May 17, 1998

L i Lu, a student leader in the Tiananmen


Square uprising, has jumped headlong
into the bull market. In January, he rented
two rooms of office space on the 15th floor of
hedge fund include: Stanley Shuman, executive
vice president at Rupert Murdoch’s deal maker,
Allen & Company; Jack Nash, co-founder of
Odyssey Partners L.P.; Robert Shaye, chief ex-
660 Madison Avenue, and, equipped with a ecutive of New Line Cinema Corporation; Ro-
phone, a computer and a Bloomberg machine, bert Bernstein, former chief executive of Ran-
he got to work investing other people’s money, dom House Inc. and a founding chairman of
running a high-risk hedge fund called Himalaya Human Rights Watch; and his son, Tom
Capital Partners L.P. The minimum investment Bernstein, president of Chelsea Piers Manage-
is $1 million. ment Inc. And proving that it’s a chic invest-
In setting up the fund, Mr. Li said he’s expe- ment, there is also Sting, the sensitive rock star
riencing firsthand the capitalism and democracy and rain forest activist, who has kicked in with at
he was fighting for in his homeland. “Free man, least a million of his own.
free market,” is a phrase he invokes often. The glittering client roster seems not to
Mr. Li is 32 years old. He wears Armani suits intimidate Mr. Li. “You prove to them you’re
that he buys at a factory outlet; he lives in one of good, people trust you,” he said over iced tea at
those bland modern towers on the East Side. Sofia’s Fabulous Grill on the Upper East Side.
While other Wall Street hotshots his age may “They don’t ask how many years I’ve managed a
have endured the trauma of not getting into the fund. The question is, Can you make me money?
business schools or investment banks of their Show me the money! This is one area where, if
choice, Mr. Li has survived poverty, separation you really believe you’re smart and you’re unique
from his family (his parents were forced into la- and you’re different, this can be challenging-this
bor camps) and a devastating earthquake. When is it. Because if you’re right, you make a lot. If
he escaped to America after hundreds of his fel- you’re wrong, you lose a bundle.”
low protestors were killed in Beijing, he was one With the Dow Jones average rising above
of the most wanted dissidents in China. 9,000, the latest financial district jokes and clichés
His clients hope they’ll see big profits, but liken good investing to good sex. Mr. Li consi-
they also seem to be investing in the future of dered the comparison. “This market is not a
Mr. Li himself. Jerome Kohlberg Jr., a founder of man’s sex drive,” he said. “If you had to compare
the leverage buyout monolith Kohlberg, Kravis, it, this market is a woman’s sex drive. It is really
Roberts & Company, said his decision to invest experiencing a multiple climax, but even the
with Mr. Li “wasn’t my usual cautionary thing, woman has downtime. The traditional Chinese
but my admiration prevailed … I don’t know sentiment is that the woman has the capacity to
about others, but I would like to see him succeed climax 15 times. The market is turning into the
and eventually help bring China into the 21st traditional description of the woman’s sex drive.
century and be a democracy, and I think he, by My girlfriend is around that number.”
then, will be uniquely qualified.” So how long can it last? “Nothing goes forev-
Others who have invested in Mr. Li’s new er,” Mr. Li said. “As I say, even if you compare it
with the woman’s sexual capability, it has an end. His convictions led him to Nanjing Universi-
This market is capable of multiple climaxes, but ty and Tiananmen Square. He was deputy com-
there is a recession.” mander of the student movement, second to
Born in 1966, the year Mao Zedong initiated Chai Ling, who is now at Harvard Business
the Cultural Revolution, Mr. Li was separated School. He saw many of his fellow student
from his parents when he was less than a year protesters shattered by the massacres. “They
old. He passed through half a dozen adoptive couldn’t get over this sense of loss and failure
families during the first decade of his life. Mao’s and guilt,” he said. “It was terrible and I had
regime condemned his mother, a botanist and some of it.”
the daughter of a wealthy landowner, and his fa- He arrived in Manhattan in December 1989.
ther, an engineer, as bourgeois intellectuals-and By 1996, he had earned a B.A., M.B.A. and J.D.
therefore enemies of the state. They were sent from Columbia University, and written a me-
to separate labor re-engineering camps. Facing a moir of his experiences in China (Moving the
life of hard labor, Mr. Li’s mother was forced in- Mountain, Macmillan London). With royalties
to having to choose one of her children to keep from the book, as well as fees earned from giv-
with her. She kept Mr. Li’s older brother. ing lectures, he made investments and rode the
“Mao Zedong’s way was to make people bull market to the $125,000 he needed to pay his
crazy,” Mr. Li said. “It was like a religious cult. living costs and the tuition not covered by his
You cut all the culture, you kill or jail all the scholarship.
people with learned minds who think indepen- “Early on,” he said, “I know I gotta make
dently. Anything that remotely reminded you of money work. The whole thing is, really, money
humanity was destroyed.” makes money. That’s the whole thing about ca-
On the eve of Mao Zedong’s death in 1976, pitalism. Without the capital, there is no -ism.”
Mr. Li survived an earthquake in Tangshan, Chi- His early success in investing, linked with his
na, that killed the adoptive family whom he had abysmal experience with communism, made
grown to love. In the earthquake’s rubble, the him a true believer in the free market. “But the
10-year-old boy ran through the city; the dead precondition of capitalism is a free man,” he
bodies overwhelmed him and he blacked out. said. “With free market and free man, if you re-
When he came to, he saw a woman giving birth move one of them, it is not called capitalism in
and heard her cries. my dictionary. Without a free man, there is no
Days after the earthquake, radio propaganda free market. That’s called exploitation. In China,
claimed that Mao Zedong’s administration was there’s not capitalism. It’s official corruption,
helping his ravaged town-something that ran that’s what it is.”
counter to what he saw. “The soldiers and party Before striking out on his own, Mr. Li
officials are grabbing all the things available for worked for a summer at the white-shoe law firm
relief for themselves or their family,” he recalled. Simpson, Thacher & Bartlett, put in four months
“Older people just don’t get anything. So I de- at the media investment-banking firm Allen &
veloped a tremendous aversion, you know, ha- Company and spent two years as a corporate
tred toward those people.” finance associate at another investment banking
He was living with his blood family again firm, Donaldson, Luf kin & Jenrette. The chores
and came under the guidance of his grandmoth- that go with pleasing clients didn’t sit well with
er, a founder of elementary schools in the 1930’s. him. “It’s very hard for me in the service busi-
She told him the only way he could beat the ness,” he said. “I want to make up a decision and
government and help people was, first of all, to do it. I’m a doer rather than just giving ideas.”
educate himself. Mr. Li immersed himself in Mr. Li’s liberation from corporate hell came
books, which gave him the idea that “other on the red-eye from San Francisco to New York
people have lived a different life, a better life, so last year. On the flight, he saw Rena Shulsky, a
should I-so should everybody.” Manhattan real estate magnate whom he had
met while giving a lecture. She encouraged him ident Jiang Zemin concerning the possibility of
to start a fund. “I thought he could do better expanding his company into China. (Mr. Li at
than working at D.L.J.,” she said. She also, ac- first would not comment on Mr. Kluge; in a later
cording to Mr. Li, gave him something better interview, he said Mr. Kluge was not one of his
than advice-namely, $2 million in seed money. clients. Mr. Kluge did not return calls seeking
(Ms. Shulsky would not comment on how much comment on the matter.)
she invested with him.) Mr. Li said he likes to buy stocks that are un-
Tom Bernstein, who helped Mr. Li gain asy- dervalued, in his estimation. That goes against
lum in the United States in his role as board pres- the currently fashionable “momentum” theory
ident of the Lawyers Committee for Human used by investors who believe they can ride an
Rights, was another early investor. “We kid overvalued stock that is still soaring in price, and
about Li Lu,” Mr. Bernstein said. “If you said then jump out before the stock comes crashing
that someone was going to make a billion dollars back down.
and be the head of the largest country in the “If you’re right, ultimately it will prove
world, all in one lifetime, he could be the guy.” you’re right, but you look stupid for a long
Two investors said John Kluge, chairman of time,” he said of his own gambits. “It is what I’m
Metromedia Company, had invested in Mr. Li’s all about. It’s revolutionary. It is about trusting
fund this past January. Which seemed odd, given yourself. It’s about challenging the conventional
Mr. Kluge’s recent meeting with Chinese Pres- wisdom. That’s what we did in Tiananmen.”
Li Lu’s 2010 Lecture at
Columbia Business School
Rough transcript/summary by Tariq Ali
Spring 2010

After I graduated I worked at an investment bank


BRUCE GREENWALD: for a year and realized it was a mistake. I tried to
Warren Buffett says that when he retires, there start a fund but I didn’t have a track record. The
are three people he would like to manage his first year I managed money I lost 19%.
money. First is Seth Klarman of the Baupost Being a value investor means you look at the
Group, who you will hear from later in the downside before looking at the upside. Before
course. Next is Greg Alexander. Third is Li Lu. becoming an investor you need to look at how
He happens to manage all of Charlie Munger’s you can fail at this game. There are all sorts of
money. I have a small investment with him and ways you can fail. You need to examine who you
in four years it is up 400%. [Applause] are and see if you could be good at it. If you
could ever find something you can do well that
you really like—that will be your best investment.
LI LU: You will do better than competitors. If you can do
Columbia is where my whole life in America it with intrinsic passion, that really over time will
started. I could barely speak the language. In Co- add enormous value to you.
lumbia it was where I had a new life. It was really Back to the game of investing. This concept
in the Value Investing class where I got my ca- of margin of safety is an essential concept to be
reer start. I was really worried about my student a good investor. The future is unpredictable, you
loan debt at the time and a friend told me about will always be dealt surprises, some positive most
this class and said I need to see a lecture from negative. You need to build in a level of safety so
Warren Buffett. that whatever happens, you will not get crushed.
What I heard that night changed my life. He If you can really successfully know what you are
said three things: getting into, you can pretty much navigate. Most
people are troubled by what they don’t know.
1. A stock is not a piece of paper, it is a The world is divided by those who know and
piece of ownership in a company. those who don’t know. If you really know—you
2. You need a margin of safety so if you are will not pull triggers like Wall St. traders. If you
wrong you don’t lose much. are truly intellectually honest, you would not do
3. In the market, most people are in it for anything.
the short term. It allows you a frame- This class teaches you to know what you are
work for dealing with the day to day vola- getting into, especially accepting what things you
tility. don’t know. The game of investment is really
continuous learning. Everything affects an in-
Those were three powerful concepts. I had vestment, it constantly changes. You are not in-
never viewed the stock market like that. I viewed vesting in the past but the accumulative cash
it negatively as a place made up of manipulators flow of the future. You have to want to find a
who were lining their own pockets. I embarked certain set up where you can know something
on an intensive two year study learning every- that most people don’t know. There are plenty
thing about Buffett. of things I don’t know but they don’t factor into
Two years after that I bought my first stock. the purchase because I am using a huge margin
of safety. Buying a dollar at 50 cents. So if things in the middle of the Asian Financial Crisis. A few
turn against you, you will be okay. That is not years later there was the Internet bubble. A
easy. This business is brutally competitive. It is so couple years ago was the Great Crash of 2007 –
impossible to know everything and know exactly 2008. They are billed as once in a century disas-
what is going to happen to a business from now ters but happen every few years. Every time it
till the end that you really have to accept that goes against you, your net worth or value of
what you don’t know. your investments might go down 50%. This is
Finding an edge really only comes from a really where that insight and temperament
right frame of mind and years of continuous comes in. In a sense, you have to have a certain
study. But when you find those insights along the confidence in your own judgment and not be
road of study, you need to have the guts and swayed by other people’s views. It is not easy.
courage to back up the truck and ignore the opi- But that is life. It is just a given. It happens to
nions of everyone else. To be a better investor, everyone. Berkshire had at least three times
you have to stand on your own. You just can’t when the stock went down 50%. It happened to
copy other people’s insights. Sooner or later, the Carnegie too. It happened to Rockefeller. It hap-
position turns against you. If you don’t have any pens to everyone. If you really made a mistake, it
insights into the business, when it goes from would not stop at 50% but go to 0.
$100 to $50 you aren’t going to know if it will This happens to even mighty companies.
back to $100 or $200. Look at the top 50 companies in America every
So this is really difficult, but on the other 10 years. By the time 20-40 years go by, 2/3rds of
hand, the rewards are huge. Warren says that if them will be gone. By the time it goes to 100
you only come up with 10 good investments in years, there might be only a couple left. It’s just
your 40 year career, you will be extraordinarily the way it is. Look at what happened to the once
rich. That’s really what it is. This shows how dif- mighty General Motors. So thats why I’m saying
ferent value investing is than any other subject. is, investing is a continuous learning process be-
So how do you really understand and gain cause your investments are constantly changing
that great insight? Pick one business. Any busi- So for those of you that have curiosity and
ness. And truly understand it. I tell my interns to the temperament, this game couldn’t be better.
work through this exercise—imagine a distant Capitalism rewards people who are talented at
relative passes away and you find out that you capital allocator. So if you have the aptitude and
have inherited 100% of a business they owned. temperament, it is the great game. If you don’t
What are you going to do about it? That is the have that then I urge you not to go and become
mentality to take when looking at any business. I a nuisance. That is really what Wall Street did,
strongly encourage you to start and understand they don’t really create anything they just move
1 business, inside out. That is better than any money around. Letting the financial industry get
training possible. It does not have to be a great too big is bad for the economy, it is just as bad as
business, it could be any business. You need to be getting addicted to casinos, drugs, and alcohol.
able to get a feel for how you would do as a None of them are really useful, they just transfer
100% owner. If you can do that, you will have a wealth. That is what I think happened on Wall
tremendous leg up against the competition. Street over the last several decades. So avoid be-
Most people don’t take that first concept correct- ing harmful.
ly and it is quite sad. People view it as a piece of With that I am open to questions.
paper and just trade because it is easy to trade.
But if it was a business you inherited, you would
not be trading. You would really seek out know-
Q. Mohnish Pabrai recently spoke about his
reluctance about investing in China due
ledge on how it should be run, how it works. If to the multiple accounting books / the possi-
you start with that, you will eventually know bility of fraud. How do you deal with this giv-
how much that business is worth. en your own investments in China?
When I started in the business in 1997, it was
Well, you know I think he is right. Everything So if you can understand a business inside
has an exception though. Just because a next out you can then eventually extend that to un-
door neighbor is a fraud doesn’t mean you are. derstanding an industry. If you can get that in-
That is one question to ask—whether you can sight, it is enormously beneficial. If you can then
trust the accounting and people running the concentrate that on a business with superior
business. That can have a huge impact on the economics in an industry with superior econom-
business. I suggest you spend a lot of time look- ics with good management and you get them at
ing at these factors, especially if you are investing the right price—the chances are that you can
for the long haul. stay for a very long time.

Q. Why did you decide to go into venture


capital? How is that different than your
Q. Did you have any specific example?

other investing?
I have studied many over the years. As I have
I always had this bent that I want to build a real said, don’t copy other people’s insights because it
business. I started a venture and it was really a doesn’t work. Automobiles are amazing. If you
lot of fun. Overall, it is a tougher game than look at the early days it started with several play-
simply investing in securities because you have to ers and concentrated with just a few players that
evolve to the day to day changes in operations became enormously profitable. Then they be-
and it is just not as easy to build great businesses. came miserable. You then see how the life cycle
Every generation has a handful of great busi- turns with new automakers in China and India.
nesses that come from nowhere and come to Everything has a reason. If you want a good
dominate their fields. It is much more rewarding idea—look at General Motors from the early
as an investor to pick those. Also, you are more days, look every 5 years and see how the per-
likely to find managers much more capable than formance metrics change. The Graham and
yourself. Overall, I learned a lot. I learned a lot in Dodd Center should collect all the data and per-
how businesses succeed and how businesses fail. form some kind of commentary on it.
It really was a lot of fun. I probably carried it too BRUCE GREENWALD: Do you want me to give
far—I eventually ran one of the businesses and it you the answer to that? In the 1960s, their return
was of course a mistake. on capital was 46%. In the 1970s their return on
capital was 28%. In the 1980s it was 9% in the
Q. I read that when you look at an industry,
you look at the most miserable failures
1990s it was 6%. You want to guess how negative
it is now?
of that industry to see whether you will invest LI LU: So that is really fascinating. If you have
in it. Can you talk a bit about that? that data, the amount of insight that would yield
would be astonishing. So instead of just accept-
It goes back to understanding the business. Once ing the conventional wisdom that the auto busi-
you have that understanding you can extend it to ness is bad—that is just not true. Or if you say
understanding an industry. A certain industry well those guys are just unbelievable money ma-
might have characteristics that make it different chines—that is not true either. So if you can real-
than others. In certain industries you might have ly examine those statistics and understand it that
better prospects than others. Find the best of the will give you an advantage for analyzing new sit-
players in the industry and the worst players. uations like in China and India. That is really
And see how they perform over time. And if the what turns me on. Understanding this gives you
worst players perform reasonably well relative to a tremendous leg up.
the great players—that tells you something
about the characteristics about the industry. That
is not always the case but it is often the case. Q. I wanted to ask you about BYD. I heard
that you thought it was important for
Certain industries are better than others. them to introduce a model to the US and
wanted to know why you thought that. Q. Right—but what did you look at to
reach that view?
That might be a better question to ask the BYD
chairman than myself. Well, If you are just talk- There are a lot of people who have worked over
ing about electric vehicles, you know the key— 100 years making great cars. The technology for
the heart and soul of the electric vehicle age the building a traditional car has been refined enough
heart is the battery. There is the battery, electric to where it can be learned in a short period. The
motor, and the electric control panel. The elec- place we are still seeing a curve of continuous
tric motor has been there for 100 years, control rapid improvement is with the batteries for cars.
system is software that can be improved over Whoever is leading the charge will have a major
time. advantage. There is really only one company
The battery is really where you get the big- that is a leader in battery manufacturing and au-
gest appreciation and is what determines the tomobile manufacturing. There is only one
value of the electric vehicle. 100 years before the company. To put this together you need a Ford
Model-T was introduced, the competition be- to put that together. So far those two elements
tween electric vehicles and gasoline was not need to be put together. It is not an easy process.
nearly as optimistic. Up and till then, one-third
of cars being produced were electric. It wasn’t
until Rockefeller got oil extracted easily enough
Q. So you went to BYD in 2005 and then you
brought Berkshire as well. I saw that you
that it worked. Henry Ford was able to make the sold a small amount of your BYD position at
internal combustion work even though it wasted the end of last year. Was it just rebalancing?
85% of the energy. He was able to build the en- I just wanted to get your thoughts on that.
gine and produce automobiles that were cheap
enough for people to buy and it took off. That is Actually I started my BYD position in 2002. I sold
where you find the real winners. a small amount of shares because an investor of
Now, years later, we know that the way that mine had an emergency redemption.
oil is burned contributes to global warming. If it
continues, the planet might still be here but all
the human beings might not. Human beings
Q. We read your profile online. I had a
question—do you have any problems
have only been on the planet for a tiny bit of the when trying to invest in China?
earth’s history. So there are all sorts of good rea-
sons for electric cars. Battery development has Yeah I do have some difficulty. I did not really see
advanced so much that it is now comparable to a factory plant at BYD until the end of 2008. I
the price and performance of traditional cars. So really did not have a better understanding till
now with the help of companies like BYD, the then. That really causes you to question what it
balance is about to tilt towards where perfor- is before you make an investment. With invest-
mance and price are getting to the level that ing, you have to work with imperfect informa-
makes them a desirable alternative. It will be de- tion because you are buying a piece of the fu-
sirable everywhere. Eventually, if you have a car ture. I did not really get a chance to get more in-
that does all that, it will be sold everywhere. formation because the problem in Asia till much
later but it did not stop me from making my in-
vestment decision. So there is a point, where if
Q. What about BYD versus others in the
industry? you have enough margin of safety– that is why I
kept coming back to the elementary concept of
The market will determine that. (Yeah – but why margin of safety—you can allow much more
BYD versus others?) uncertainty and unknowns. So the answer of the
Well because we also studied all those other question is does that stop you from making the
guys. We will see when the winner emerges investment? No.
whether we are right or wrong.
Q. So I did some research on lithium ion
batteries, and I saw that BYD has a
history, of all the great corporations will give you
a good insight in seeing what will happen with
manufacturing advantage with consumer bat- BYD. I suggested that we start with GM and ana-
teries. But I saw that automobile batteries are lyze its performance every 5 years for 100 years
much more complex. I did not think that the to understand at least one aspect of BYD’s busi-
idea of a good consumer battery manufactur- ness.
er + an automobile maker made much sense.
So when Buffett looked at the stock maybe it
was a better deal but today it is this dream of
Q. One investor came in and said talking to
management is a waste of time. They
vehicles that is really priced in. It does not feel will say what you want them to say. Obviously
like a good value investor stock. So why would it sounds like you don’t agree with that. What
you own it today? do you think? Will you pay a premium for a
business with a moat?
Well that is interesting. One of the most fascinat-
ing things about being an investor is that surpris- There is no general rule. The key in investing is
es are part of the game. When you get into situ- to know what you know and know what you
ations like BYD, you see lots of good surprises. don’t know. You can know about management
Chuanfu and his team have this fabulous culture, teams without meeting with them. Every situa-
everything people thought they knew turned out tion is slightly different. So I come back to the
to be a few years late. He got into battery manu- point that if you know enough on other things
facturing in that particular way because he really that there is enough margin of safety. Even if
had no other option. He had no money, he only you meet with management, you may not learn
had $300,000 in venture capital funding before something. Obviously, actions speak louder. You
IPO and that was it. He raised money in an IPO want to see what they have done. Everything be-
and Buffett gave him $200 million, now they have ing equal, the more you know about manage-
160,000 employees, $6-7 billion in revenues, and ment, the more honest and upfront they are, the
$500 million in net profit. It is amazing. So he has more motive they have, the better the situation is
this ability to adapt in a competitive environment. and the deeper the discount. You have to analyze
He has demonstrated that ability again and again it all. The key to analyzing it is you have to ask:
and again. The way he does automation is far do I really know what I think I know, do I really
cheaper than anyone else and more reliable. He know what I don’t know? If you can’t answer
continues to surprise me with his ingenuity, to that question, chances are you are gambling.
figure out ways to do something better than eve-
ryone else. What he is currently doing is very dif-
ferent than what everyone else has done. At the
Q. What kind of preparation do you do be-
fore meeting a management team?
end of the day, you might look at what he has
done. I don’t really have a set method. Because I usual-
So how do you look at it as an investor with ly am just curious about the business and don’t
imperfect information? Well I suggest you look know a lot. So you are prepared and not pre-
at what he has accomplished. 8 years ago I had pared. If you are really curious, you want to
no idea they would go into the automobile or learn more and study it more. When working at
laptop or cellphone battery business. So that a hedge fund or mutual fund, you are expected to
demonstrates how he is. This investment is not learn a business in 1 week. You can’t truly under-
easy to understand because it is changing so fast, stand everything about a business in 1 week. It
at such a large scale. An almost unheard of speed. took me 10 years and I am still learning new
Their manufacturing capabilities will double things about BYD. It is a continuous learning
soon. This year they will hire 10,000 college gra- process. You could spend a lifetime studying a
duates, 8 or 9 thousand engineers. The scale is business or industry, but in a few seconds I can
almost unparalleled. So this is why the study of tell you whether or not I like it. You want to
build a knowledgeable of continually learning. lose all your money. The best kind of short
There is not set preparation. usually has some kind of fraud. In those situa-
tions, management is determined to keep the
Q. Recently, Jim Chanos gave us his thesis
on the China Syndrome with there pos-
fraud. Look at Bernie Madoff, 20 years time. You
cannot afford to borrow money for 20 years. So
sibly being a bubble. shorting is a short term game. When those posi-
tions go against you, there is huge leverage that
Well, it is too big of a question for me. I don’t can utterly crush you.
know. In theory, long / short is okay, but if you are
trading all the time you need to be in tune with
Q. 20 years ago you said you challenged
conventional wisdom in China. Out of
all the things moving the market. None of them
might be fundamental to the actual business. So
curiosity, in terms of value investing what do you spend all your time chasing noise than stud-
you challenge in the conventional wisdom? ying a long term situation. If you cannot con-
centrate on things in the long term, and spend
Well, the fundamental philosophy of value in- all your time thinking about the short term, you
vesting is very sound. It’s basically the three will not be able to develop the kinds of insights
things: necessary to identify great investments.
1. A stock is not a piece of paper, it is a piece From time to time, you will lose some mon-
of ownership in a company. ey on paper. But it is just part of the game. This
2. You need a margin of safety so if you are is why I closed long / short. You know I went
wrong you don’t lose much. through three bubbles. The Asian Financial Cri-
3. In the market, most people are in it for the sis, the Internet Bubble, and this most recent fi-
short term. It allows you a framework for deal- nancial crisis. The biggest mistake I made is not
ing with the day to day volatility. being able to pick up undervalued companies
That is really an intelligent approach. So where I had a unique insight but was tied up
therefore any intelligent investing is really value with this whole long / short thing. The money I
investing. There is a certain level of intellectual left on the table is still adding up. I am still paying
honesty. If you have all that insight going into for those mistakes.
analyzing businesses I don’t have any arguments
with it.
Q. In a bull market environment, how do
you re-evaluate your thesis?
Q. What is your point of view on long /
short positions in value investing? I don’t ever want to profit from a bubble. Soros
does that, that is just not my game. I don’t pro-
The most profitable kind of investing is long term fess any ability to understand how long a crowd
investing. You want to allow the time that it will buy into a bubble. I invest in things that ap-
might take because you don’t know when the pear to be compelling values that continues. So
market will catch on. If you can find a business that is why this game is a continuous learning
with good management with good industry process—because everything affecting the in-
fundamentals blowing it forward, you have a vestment is constantly changing. Including the
good opportunity and you can save money on price. Including the prospects and elements of
taxes. business success. You really do want to never
A short cannot be a fundamentally long term stop learning. This game looks to be easy but it
position. In the long game, the upside is unli- is not easy.
mited. Your downside is 100%. In shorting it is
opposite. Shorting is also essentially borrowing,
so you need money and time on your side. If Q. Given your focus on international in-
vestments, how do you think about di-
time is not on your side, you can be right but versifying your investments regionally?
First of all, I did not really specialize in interna- hedge fund manager today (referring to the ire
tional investments. I started off doing most of directed at Wall Street)?
my investments in the US and Canada. In recent
years, I just find better bargains outside of it. I don’t consider myself a criminal. I don’t think
One of the great things about being an investor China considers me a criminal. What I think we
is you can look anywhere and find great pockets are doing today with our investment in BYD in
of opportunities. You cannot do that as a venture China is really helping China march towards a
capitalist as I experienced myself. So you can modern era of prosperity. BYD is providing a so-
look anywhere for opportunities. I do not take a lution to both China and the US, to migrate
regional approach to diversification. I have views from the past to a way that gets us out of the un-
towards certain countries and currencies, but it is sustainable carbon age that we live in. Global
not the driving force for a potential investment. warming is a vital concern to every human be-
If you have your fundamental things right, if you ing, so China is providing a great contribution to
happen to have macro economic factors behind everybody with BYD. America has had a great
you, you can run a great wave. history of invention and here is a great company
in China that is about to make a major contribu-
Q. How is your investment style different
today than when you started the fund?
tion to human civilization with cheap electric
vehicles and solar power.
Ultimately we will have to get our energy
A lot of things have changed. One bonus about from the sun. Most of the energy, even fossil fu-
this profession is you get better over time. Most els (plants that die and then go into the ground),
professions, as you get older, you get out of the all originally come from the sun. So if you can
game. Take the example of competitive sports. figure out a way to take energy from the sun and
If you are a figure skater or gymnast, after your power vehicles, while using batteries to store it,
teenage years you are out of the game. With in- inexpensively—will really make renewable ener-
vesting, if you are doing it the right way, you get gy power everything. The combination of those
better over time. Your knowledge accumulates things holds the key to the future of industrial
exponentially. When I look back at everything I civilization that we are about to embark on. We
have done, I would have done it all slightly diffe- didn’t set out with BYD with this in mind, it just
rently, but that is because I am better at it today. happened that way. With great companies, it on-
So if you approach it in a fundamentally sound ly looks logical in retrospect. Think about how
way, as you mature, you become better and bet- Bill Gates started Microsoft. I don’t think he
ter. That process and progression is like com- knew up front that he would take the entire
pounding money. In fact, you can compound market—at that time it did not exist. It is the
knowledge faster than money. If you truly love same way with our investment in BYD. Ulti-
this game, I would suggest that you don’t take mately, I think finding an inexpensive way to
short cuts. It might take longer but it is more re- store energy that we harness from the sun will
warding. be a huge contribution for both China and the
US, but more broadly our entire civilization.
Q. What is the difference between being a
top political criminal in China versus a

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