#363

Charlie Munger's Influence

• Charlie Munger became the speaker's investment partner in 2004 after they met at a mutual friend's house. (9s)
• The speaker reorganized their company based on advice from Munger to follow a different path than Wall Street. (1m29s)
• Charlie Munger expanded Warren Buffet’s horizons and helped him see the blind spots in his thinking. (5m55s)
• Munger believes in studying failures to avoid making mistakes and uses this approach to make investment decisions. (3m4s)
• Munger believes it is important to be strict and demanding of oneself in order to overcome human weaknesses. (8m14s)
• Munger is a voracious reader who always carries a book with him to avoid wasting time. (7m51s)
• Charlie Munger's $400 million return from a single insight he gained after reading Barron's Magazine for 50 years exemplifies the value of extensive research. (21m48s)
• Charlie Munger highlights Li Lu's exceptional investment talent, comparing him to Warren Buffett and emphasizing the significance of concentrating on the best opportunities. (43m36s)
• Charlie Munger advised Warren Buffett to focus on acquiring exceptional businesses at fair prices, deviating from Ben Graham's value investing principles. (1h8m52s)
• Munger believed that Graham's strategies were only effective on a smaller scale. (1h9m11s)
• Buffett credits Munger as the architect of Berkshire Hathaway's success. (1h9m33s)
• Lee Lu discusses the influence of Charlie Munger on Warren Buffett and himself, emphasizing the importance of strong businesses over cheap securities. (1h8m16s)

Li Lu's Journey

• Li Lu's life changes after attending a lecture by Warren Buffett at Columbia Business School. (12m36s)
• Li Lu realized that he could succeed in the investing business after listening to Buffett's lecture. (12m58s)
• Li Lu believes that most of the stock market (95%) is made for traders and only a small percentage (5% or less) think like value investors such as himself, Buffett, and Munger. (15m50s)
• Most people do not have the temperament to be a value investor. (16m5s)
• Li Lu realized he was not part of the 95% of people who could not be a value investor after working with Julian Robertson and other fund managers. (17m15s)
• Li Lu believes that to be a successful value investor, you must have an insatiable curiosity and read everything. (19m53s)
• Li Lu believes that extensive reading and research will lead to a few tremendous opportunities, and when those opportunities arise, one should invest significantly. (20m55s)
• Li Lu emphasizes the importance of thoroughly analyzing businesses, using the Value Line Investment Survey as a tool, and prioritizing valuation as the first step in the process. (25m5s)
• Li Lu emphasizes the importance of in-depth knowledge and conviction in investing, drawing parallels with Warren Buffett's approach. (41m31s)
• Li Lu believes that individuals must cultivate the ability to trust their own judgment, emphasizing the importance of independent thinking and thorough research. (1h15m39s)
• Li Lu prioritizes studying industries and companies over analyzing other investors, believing that focusing on the fundamentals of business is crucial for success. (1h15m55s)
• Li Lu, an investor, started his position in BYD in 2002 and has been continually learning about the company for over 10 years. (59m49s)

The Importance of Research and Effort

• An individual believes there is an investment opportunity in Timberland because the company has a good brand name but the stock price is declining. (25m39s)
• The individual believes the decline in Timberland's stock price is due to the Asian financial crisis, a lack of analyst coverage, and lawsuits. (25m45s), (26m3s), (27m8s)
• The individual believes it is important to thoroughly research potential investments, including reading all available documents, even if it requires significant effort. (27m29s)
• An individual invested heavily in Timberland after conducting thorough research, which included visiting the company's community and church, befriending the founder's son, and speaking with store managers. (30m10s)
• The investment in Timberland grew seven times its initial value over two years. (32m21s)
• The individual decided to sell their Timberland stock when they observed a significant increase in attendance at analyst meetings, indicating heightened popularity and potentially reduced future growth. (33m32s)
• Bruce, a teacher, criticizes his Columbia Business School students for their lack of effort and preparation. He expresses disappointment that only one student claims to have done the homework, and even that student's effort is questionable. (34m49s)
• Bruce emphasizes the importance of effort, curiosity, and continuous study in the investment business. He believes that success in this field requires a deep understanding of how things actually function, rather than relying on superficial descriptions or labels. (35m23s)
• Bruce stresses the significance of accurate and complete information in investment, a principle he refers to as his "mantra." He believes that investors should be willing to go the extra mile to obtain reliable information and make well-informed decisions. (38m27s)
• Sam Walton had a deep understanding of Walmart, allowing him to effectively direct his time, energy, and money into the company. (39m57s)
• To gain valuable insights, deeply understand a business as if you inherited it. This approach provides a significant advantage and helps determine the business's true worth. (56m56s)
• An individual can gain a comprehensive understanding of an industry by first understanding a single business inside and out. (59m9s)

The Importance of Opportunity Cost

• Considering opportunity cost is important when making life decisions. (44m44s)
• An individual should be intensely curious and treat the world as a classroom, constantly seeking knowledge to stumble upon big opportunities. (46m5s)
• Great investment opportunities are rare, and diversifying away from a significant opportunity for inferior ones is not advisable. (1h5m44s)
• Investing should be viewed through the lens of opportunity cost, comparing potential investments to the best available option. (1h6m57s)

The Importance of Finding Your Passion

• To be successful, find something you are intrinsically passionate about and continuously learn about it. (53m40s)
• Sam Walton, founder of Walmart, exemplifies this by meticulously studying the retail industry for years. He started slowly, operating a single store for five years, but his continuous learning allowed him to rapidly expand Walmart and later launch Sam's Club, achieving immense success. (54m51s)
• John D. Rockefeller believed that change in business equals opportunity and that capitalism rewards those skilled in capital allocation. (58m46s)
• Success in investing involves finding a method that fits one's personality, working hard, and doing what one loves to gain a competitive edge. (1h7m31s)
• Discovering one's interests, strengths, and passions, and magnifying them, can provide a significant advantage in investing. (1h8m16s)

The Importance of Focusing on the Best Opportunities

• (1h3m24s) The practice of successful investors like Warren Buffett and Charlie Munger is not widely followed due to human psychology, particularly the love of gambling despite unfavorable odds.
• (1h4m6s) In the short term, there will be winners and losers, but over the long term, very few achieve outstanding results, indicating the importance of studying and emulating successful investors.
• (1h4m25s) Successful investors do not bet often, and most people lack the mental discipline required for this approach.
• (1h4m41s) The focus should be on finding enduring, earning-generating franchises and compounding machines by studying great examples from the past.
• (1h5m0s) It is crucial to only pursue the best opportunities, as one great opportunity can yield enormous returns.
• (1h6m57s) Success in investing involves finding a method that fits one's personality, working hard, and doing what one loves to gain a competitive edge.

The Importance of Independent Thinking

• Successful people possess a combination of traits that enable them to adapt to change more effectively than others. (1h13m51s)
• Li Lu believes that individuals must cultivate the ability to trust their own judgment, emphasizing the importance of independent thinking and thorough research. (1h15m39s)
• Li Lu prioritizes studying industries and companies over analyzing other investors, believing that focusing on the fundamentals of business is crucial for success. (1h15m55s)

The Importance of Building Relationships

• At age 50, the speaker feels they are closer to the end of their life than the beginning. (1h20m20s)
• The speaker believes they were lucky to meet Warren Buffet 25 years ago and Charlie Munger 13 years ago. (1h19m46s)
• The speaker believes it is important to constantly make new young friends. (1h20m52s)

Businesses with High Switching Costs

• Businesses with high switching costs, such as Bloomberg, are difficult to compete with because users invest significant time in learning their functionalities and rely on them for daily work, making them less likely to switch to competitors. (48m35s)
• Michael Bloomberg was able to create a "fabulous business" by creating a product that is essential to its users and has no true alternative in the market. (49m38s)
• The lack of alternative gives Bloomberg pricing power, allowing them to charge high prices without consequence. (50m19s)
• Businesses with high pricing power are rare, but any manager could increase returns by raising prices in such a business. (51m34s)

Personal Reflections

• After graduating from Columbia, Lee worked at an investment bank for a year before attempting to start a fund, which lost 19% in its first year. (53m34s)