Wednesday, May 19, 2010 15 comments ++[ CLICK TO COMMENT ]++

Li Lu, an up-and-coming value investor

Lately the value investing world has been speculating that Li Lu, an up-and-coming investor, may end up as one of the portfolio managers at Berkshire Hathaway. At one time, the replacement for Warren Buffett, at least on the portfolio management side, mattered a great deal for Berkshire Hathaway. Now, I don't think it really matters very much. Warren Buffett has basically "used up" all his free cash with his Burlington Northern Santa Fe acquisition. My guess has always been that Buffett lost faith in his investment manager picks and decided to safely tuck away all the money into BNSF. Even for Berkshire Hathaway shareholders the future portfolio managers aren't a big issue, compared to 3 or 4 years ago when Berkshire had a big chunk of its net worth in cash.

Having said all that, Li Lu looks like an interesting fellow. He definitely thinks like a value investor and appears to be talented. His track record, from what little I have seen, is good but it's too early to say. Value investors are vulnerable to macro shifts and a seemingly good record can be shattered easily (for instance, recall how Mohnish Pabri looked really good going into the bust but his high reliance on commodity businesses, cyclical businesses, and secondary businesses caused greater-than-market losses.)

There is very little info available on Li Lu and here are two useful sources. The first is a video, originally cited by Ravi Nagarajan at GuruFocus; the other, which I haven't read fully, appears to be a transcription of the same video.

Li Lu Presentation at Columbia Business School
Transcription of Li Lu Presentation by Tariq Ali

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15 Response to Li Lu, an up-and-coming value investor

Ravi Nagarajan
May 19, 2010 at 10:16 PM

Thanks for linking to my article.  I have to disagree with the idea that the investment manager matters less than in the past because all the cash has been spent on the BNSF acquisition.  Berkshire is a cash machine and billions are coming into headquarters each year.  In a few short years, there will be tens of billions in more cash to deploy.  I hope Mr. Buffett can work for another decade but in case he cannot, a new CIO will need to be responsible for deploying this cash either into other subsidiaries, publicly traded securities, or through dividends or buybacks.  Of course, the new CIO will report to the new CEO who I'm willing to bet will be David Sokol if a new CEO was needed in the near future.

Anonymous
May 20, 2010 at 8:59 AM

He wrote a book

Sivaram Velauthapillai
May 20, 2010 at 12:02 PM

I think BNSF will suck up a lot of capital. The bears were claiming that BNSF was overstating earnings by not spending enough on maintenance capex, so who knows? In any case,  I think Berkshire will pay out most of its earnings through dividends or share buybacks in the future. It all depends on how good the new portfolio managers will be.


I'll bet that the new CIO--I am not sure if there will be one senior CIO; my feeling was it was to be spread across several managers--will have far less power within Berkshire Hathaway. In particular, no one can command the respect of Warren Buffett. I think the CEO, as opposed to any CIO, matters far more in the future. I share you thinking and think it will be David Sokol taking over the chief executive duties.

Sivaram Velauthapillai
May 20, 2010 at 12:04 PM

Is it this one, Moving the Mountain? Is that the same Li Lu? Is he still on China's Ten Most Wanted list?

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Its a good information.He is a very good person.I like to read his books.
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