Li Lu’s link with Charlie Munger is unusual in modern investing. Munger did not merely admire him from a distance. He trusted Li Lu with about US$88 million of family capital, a rare decision for someone who was highly selective about outside money managers.
Li Lu’s influence also reached Berkshire Hathaway through BYD. Business Insider reported that Li originally brought BYD to Munger’s attention, helping lead Berkshire to invest in the company in 2008. Reuters later described Munger as the person who spearheaded Berkshire’s BYD investment, with Buffett giving him full credit. Berkshire bought about 225 million shares for US$230 million, and the position later became one of its most successful China-related investments.
For that reason, Li Lu matters not simply as a successful fund manager, but as a bridge between Berkshire-style value investing and China’s business world.
Li Lu does not give many public talks. The founder of Himalaya Capital has spoken several times at Peking University’s value-investing course. His earlier lectures covered the prospects for value investing in China and the practice of value investing. His later talk, delivered for the course’s tenth anniversary, was titled “Global Value Investing and the Times.” It is the broadest and most candid of the three, linking value investing to China’s economic stage, global capital flows, and the changing world order.
This post works through the transcript and highlights what matters to a Malaysian retail investor.
A sourcing note is needed before going further. This is a speech transcript, not a peer-reviewed study. The framing here is descriptive. These are Li Lu’s arguments, presented as his views. Where he cites specific figures, they should be treated as claims from a practitioner’s lecture rather than independently verified data.
The confusions of the era
Li Lu delivered this speech in December 2024, reflecting on China’s situation after the post‑Covid reopening challenges, the property market downturn, declining household confidence, and increasing tensions with the United States. His opening analysis should be viewed in this context, not as a universal assessment of China across all periods. Domestically, youth unemployment is around 20%, private‑sector confidence is weakened, household consumption is roughly 40% of GDP and decreasing, savings rates are near 50%, property and equity losses have undermined household wealth, and bureaucracy has drifted into passivity. Internationally, the United States is questioning the legitimacy and value of the post‑war order it helped construct, especially in relation to China’s rise
His argument is that none of this is uniquely Chinese. Every economy that experienced early industrial take-off has hit a similar wall. Germany, Japan, the United States, and later South America each compressed their industrial rise into three to four decades, and each faced a structural gap afterwards: the economy transformed at compound speed, yet human nature, social institutions, and political habits changed slowly. Some societies crossed the gap. Some triggered catastrophe — he reads both World Wars partly through this lens, as conflicts fuelled by an agrarian-era obsession with territory that had already stopped being the source of wealth. Some are still stuck. That, in his framing, is what the “middle-income trap” actually is: a collision between compounding economic reality and static mental models.
What actually is wealth?
One of the most useful parts of Li Lu’s lecture is his answer to a simple question: when we invest, what are we really trying to protect?
His answer is not cash, land, gold, or property. Real wealth is your share of the economy’s future purchasing capacity.
Put simply: wealth is not about the number printed on your bank account. It is about how much of the economy you can claim in the future. Can your money still buy the same share of goods, services, assets, labour, and opportunities over time?
Li Lu gives two examples.
The first is the English aristocracy. Many aristocratic families owned castles, estates, and land for centuries. On paper, they looked rich. Yet many became poorer over time. Their land did not produce enough income to keep pace with rising costs. Servants, repairs, taxes, and maintenance became more expensive. What once looked like wealth slowly became a burden.
The second example is China’s “ten-thousand-yuan households”. In the early reform period, a family with 10,000 yuan was considered rich. Yet as China’s economy grew many times larger, that same 10,000 yuan became ordinary. The number stayed the same, but its economic meaning collapsed.
This is Li Lu’s key point: a fixed amount of money does not protect wealth in a growing economy. If the economy compounds and your assets do not, your share of the economy becomes smaller.
That is why he sees equity ownership as the clearest way to preserve wealth over long periods. A good company is not a fixed object. It can grow, reinvest, raise productivity, adapt, and earn more over time. By owning part of such a company, the investor owns a share of productive capacity.
Cash gives certainty in number, but not certainty in purchasing power. Property can protect wealth in some cases, but it can also become expensive to maintain, overvalued, or unproductive. Equity ownership, when bought at a sensible price and held in strong businesses, gives the investor a chance to keep pace with the economy’s growth.
For a Malaysian retail investor, this changes the question. The aim is not simply: “How many ringgit do I have?”
The better question is: “Is my share of productive assets growing or shrinking?”
That is the real test of wealth.
Why capital markets matter more than stimulus
Li Lu then explains why capital markets matter.
His point is not that capital markets simply provide money. Banks can provide money. Governments can direct money. Families can save money. The deeper role of a capital market is different: it creates a credit system built on trust.
He traces this history from Venice to the Dutch Republic and later to England. Venice developed tools such as double-entry bookkeeping, insurance, and early banking. The Dutch Republic pushed the idea further with the joint-stock company, the stock exchange, and the first great market bubble. England later absorbed much of the Dutch financial system after 1688, giving it a stronger base for trade, war finance, and empire.
The lesson is simple: modern growth needs more than savings. It needs a system that can move savings towards the most productive users.
This is where Li Lu’s argument becomes relevant to China. China has huge household savings, but much of that money sits inside a state-controlled banking system. Banks are good at preserving deposits and lending through official channels. They are less good at identifying the most innovative private companies, pricing long-term risk, and rewarding the best capital allocators.
A strong capital market does this better. It connects the ordinary saver to productive enterprises through fund managers, analysts, auditors, exchanges, lawyers, regulators, and reputational intermediaries. Each layer depends on trust. Each layer has something to lose if it fails. That chain of trust is what allows savings to become productive capital.
This is why Li Lu sees Hong Kong as underused. In his framing, Hong Kong already has much of the legal, institutional, and reputational infrastructure that China needs. It could play for China a role similar to what the Dutch financial system played for England: an inherited capital-market machine that could help allocate savings more efficiently.
He is equally critical of the common split between the “real economy” and the “virtual economy”. Nvidia is his example. Nvidia does not fabricate its own wafers. It designs chips, builds software ecosystems, and coordinates a supply chain around AI computing. By old industrial language, that may sound less “real” than owning factories. Yet the modern AI economy depends heavily on Nvidia’s chips and platforms.
That is Li Lu’s point. In a mature economy, the old categories become misleading. A company can own few factories and still control one of the most valuable positions in the global economy. The real question is not whether a business looks physical or virtual. The better question is: does it control scarce capability, earn strong returns on capital, and sit at the centre of long-term demand?
Value investing was born in macro chaos
This section matters for anyone who is nervous about investing in uncertain markets.
Li Lu’s point is simple: value investing was not born in calm conditions. It was shaped by crisis.
Benjamin Graham lived through the Wall Street crash and the Great Depression. His fund lost heavily between 1929 and 1932. That painful experience helped shape his core idea: investors need a margin of safety. Graham and David Dodd later set out the discipline in Security Analysis in 1934. Graham made the ideas easier for ordinary investors in The Intelligent Investor in 1949.
John Maynard Keynes reached a related lesson from another direction. He managed part of the King’s College, Cambridge endowment through the 1930s and the Second World War. Over time, he moved away from short-term market calls and towards owning selected businesses for the long run. His focus was less on cheapness alone and more on business quality, dividends, cash flow, and future earnings.
John Templeton gave the same lesson in a more dramatic form. In 1939, as war began in Europe, he bought 100 shares in 104 companies trading at one dollar or less. Many were in deep trouble. Only a small number failed completely. The lesson was not that cheap stocks are always good. The lesson was that panic can push prices far below business value.
Li Lu adds his own experience. Himalaya was launched in 1997, during the Asian Financial Crisis. In his speech, he says major Asian markets fell more than 70 per cent, with the worst falling more than 90 per cent. For many investors, that period looked uninvestable. For a disciplined value investor, it created unusual opportunities.
The most useful story is Li Lu’s POSCO and Samsung Electronics anecdote. He recalls a fund manager who went long POSCO at two times earnings and short Samsung Electronics at three times earnings, thinking that three times earnings was expensive. The fund manager was Bill Hwang, later known for Archegos
The story carries the whole lesson. A low price alone is not value. A higher-quality business at three times earnings may be far cheaper than a weaker business at two times earnings. Markets are full of investors using rough shortcuts, forced selling, bad incentives, and incomplete thinking. That is why price can detach from value.
This is why value investing still works across different eras. It does not depend on perfect markets. It depends on imperfect markets. Crisis, fear, liquidity pressure, and mistaken comparisons create the gap between price and business value. The discipline is to stay rational enough to use that gap instead of being controlled by it.
The six principles
Li Lu closes with a simple framework for value investing.
The first three principles come from Benjamin Graham.
First, a stock is not a trading chip. It is legal ownership in a real business. When you buy a share, you are buying a claim on the company’s future profits, assets, and cash flows.
Second, the market is not a judge of true value. It is a counterparty offering prices every day. Some days the price is too high. Some days the price is too low. The investor’s job is not to obey the market, but to compare price against business value.
Third, the future is uncertain. Since no investor can predict the future perfectly, every investment needs a margin of safety. The price must be low enough to leave room for error.
The fourth principle comes from Buffett and Munger. The best long-term returns usually come from high-quality businesses that can compound value over many years. Yet this only works when the investor stays within a real circle of competence. It is not enough to say a business is good. You must understand why it is good, how it earns money, what can damage it, and what it may become.
The fifth principle comes from Munger’s fishing metaphor: fish where the fish are. In investing, this means searching in areas where real opportunities exist, preferably where fewer investors are paying attention. Mispricing often appears in neglected markets, misunderstood companies, unpopular sectors, or situations where investors are using lazy shortcuts.
The sixth principle is Li Lu’s own addition. He argues that investors should try to own the most dynamic companies inside the most dynamic economies, measured against the economy where they intend to spend their money. This connects investing to real purchasing power. The aim is not to own assets that merely preserve a number on paper. The aim is to own productive assets that protect and grow your share of future economic capacity.
His comments on selling are equally practical. In the Q&A, he says he sells for three main reasons: when he has made a mistake, when a clearly better opportunity appears, or when valuation becomes truly extreme. Yet he gives a warning. Investors who sell great compounders purely because they look expensive often struggle to buy them again later.
His BYD example makes the point concrete. Li Lu says Himalaya held BYD for 22 years. During that period, the stock fell more than 50 per cent at least seven or eight times, and once fell by about 80 per cent. Each drawdown tested whether the investor’s circle of competence was real. If you truly understand the business, a falling price may be an opportunity. If you do not, it becomes panic.
The lesson is simple but difficult: value investing is not only about buying cheap stocks. It is about understanding value deeply enough to hold through the periods when the market disagrees with you.
Malaysia narrative: wealth and investing
For a Malaysian retail investor, Li Lu’s question about “what actually is wealth” lands very close to home. We live in an economy where cash in the bank, a paid‑off terrace house, and a second property for “investment” are still treated as the default symbols of having “made it.” Yet Malaysia today is not the Malaysia of our parents’ generation. In a middle‑income, services‑heavy, increasingly digital economy, the old markers of wealth can quietly fall behind the real sources of future purchasing power.
Look at how most households build balance sheets. EPF contributions and fixed deposits grow slowly but steadily. Property is often the main bet on the future: a family home, maybe a small apartment bought during a boom, sometimes an extra unit purchased on leverage. This feels safe because the numbers are familiar and the story is comforting – “property never goes down in the long run.” But Li Lu’s point, translated into our context, is sharper: if the economy compounds and your assets do not, your share of the economy shrinks.
In Malaysia, that erosion does not always show up as a crisis. It shows up gradually in everyday life. Your salary rises, but medical costs, education fees, and housing for the next generation rise faster. The house you bought may appreciate in ringgit terms, but once you factor in maintenance, assessment, quit rent, repairs, and periods of vacancy, the net yield can fall behind what a portfolio of productive businesses can earn. A fixed amount of ringgit – whether in a savings account or “locked” in a low‑yield property – becomes less able to claim the same share of the country’s output over time.
That is why Li Lu’s emphasis on equity ownership matters for Malaysians. A good business listed on Bursa is not a static object. It can reinvest, deepen its moat, and participate in the broader economy’s growth – whether through exports, regional expansion, or digital transformation. By owning part of such a company, a retail investor owns a small slice of Malaysia’s future productive capacity, not just a fixed claim on past savings. The practical question for us is no longer “How many ringgit do I have?” but “How big is my share of productive assets, and is that share compounding faster than my cost of living?”
This reframing also changes how we see risk. Many Malaysians view property as “real” and equities as “speculative” because share prices fluctuate daily, whereas property valuations change slowly and privately. Li Lu’s lecture suggests flipping that intuition for a middle‑income, capital‑market‑driven economy. The greater long‑term risk is not day‑to‑day volatility, but being trapped in assets whose earning power stagnates while the rest of the economy races ahead. For a Malaysian retail investor, especially one already exposed to property and EPF, the strategic risk is under‑exposure to productive businesses, not over‑exposure.
Seen this way, our real wealth as Malaysians lies not in the headline figures in our bank accounts or property valuations. It is the portion of Malaysia’s and the region’s future cash flows that we have quietly accumulated through disciplined ownership of strong, compounding businesses. The economy will keep changing – towards services, technology, and more complex regional supply chains. The question that matters is whether our portfolios change with it
Source: Transcript of Li Lu’s lecture at the Peking University value investing course tenth anniversary (Himalaya Capital), circa November 2024. Views summarised are the speaker’s own.
This content is for educational purposes only and does not constitute financial or investment advice. Always conduct your own research or consult a licensed financial adviser before making investment decisions.