An article in today’s Wall Street Journal discusses the possibility that Li Lu will eventually be named as one of Warren Buffett’s successors at Berkshire Hathaway. What is newsworthy in this article is that it is the first time to my knowledge that Buffett or Munger has acknowledged that a specific individual is actually a candidate.
Mr. Li, 44 years old, has emerged as a leading candidate to run a chunk of Berkshire’s $100 billion portfolio, stemming from a close friendship with Charlie Munger, Berkshire’s 86-year-old vice chairman. In an interview, Mr. Munger revealed that Mr. Li was likely to become one of the top Berkshire investment officials. “In my mind, it’s a foregone conclusion,” Mr. Munger said.
What is also newsworthy is that Buffett does not rule out bringing a manager such as Lu on board prior to his stepping down.
“I like the idea of bringing on other investment managers while I’m still here,” Mr. Buffett says. He says he doesn’t preclude making a move this year, though he adds that there is no “goal” to bring on an additional manager that quickly either. Mr. Buffett says he envisions a team approach in which the Berkshire investment officials would be “paid as a group” from one pot, he says. “I don’t want them to compete.”
Here is a comment I posted at the Wall Street Journal in response to the article.
I have listened to Lu’s lectures at Columbia and was impressed. The article suggests he could be a one-trick pony: “But hiring Mr. Li could be risky. His big bet on BYD is his only large-scale investing home run. Without the BYD profits, his performance as a hedge-fund manager is unremarkable.”
What impressed me is the way he thinks. He has a very sound investment process, very much grounded in the principles of Buffett and Munger. It’s not just about the outcome – but about how much risk was taken to achieve it. Lu only invests when there is a huge margin of safety and he does an incredible amount of homework before investing. He views himself as a kind of deep-research journalist.
Picking Lu would also be a bet on the person and his track record – which Buffett likes to do as extraordinary people are rare.
Lu is clearly a special guy having risen from poverty to earning three degrees at Columbia and starting a successful hedge fund. Along the way he emerged as a leader in an important human rights campaign within China. On top of that, he managed to impress Charlie Munger, who is not easily impressed.
“When I call Charlie with an idea,” according to Buffett, “and he says, ‘That is really a dumb idea,’ that means we should put 100% of our net worth into it. If he says, ‘That is the dumbest thing I’ve ever heard,’ then you should put 50% of your net worth into it. Only if he says, ‘I’m going to have you committed,’ does it mean he really doesn’t like the idea.”
After meeting Lu, Munger gave him a portion of his wealth to invest.
Finally, here are links to more information about Lu. Berkshire Hathaway shareholders will be particularly interested in understanding all they can about Lu. If you’re not a shareholder, Lu is worth a careful study as he is a deep thinker and a first-rate investor.
- Li Lu’s 2010 talk at Columbia.
- Transcript of Lu’s 2010 talk at Columbia (courtsey of Street Capitalist)
- Lu’s tribute to Charlie Munger
- My research articles on BYD (Lu was an early investor and brought the idea to Buffett who invested $230 million (10% stake); current value is approximately $1.5 billion)