Center as Focal Point:
Columbia Business School defines the center as a nucleus of knowledge, ideas, and possibilities. It’s a starting point where lives can take any trajectory.

Center of Opportunity:
World-class academics open doors to New York City, a dynamic business hub.

Center of Knowledge:
Top academic minds conduct leading-edge research on latest business trends and innovations.

Center of Access:
Titans of industry engage with students and faculty on a daily basis.

Center of Convergence:
Finance, fashion, media, healthcare, high tech, and more converge.

Center of Community:
High achievers from around the world share ideas and perspectives.

Center of Entrepreneurship:
Ivy League business degree provides access to a fast-growing startup environment.

Center of Global Impact:
Network of over 40,000 alumni create positive change worldwide.

Unique and Unparalleled:
Columbia Business School is the only place where all these elements converge.

Evolution of Li Lu’s Value Investing Philosophy:
>- Li Lu’s value investing approach has remained consistent, focusing on buying things at a discount or at a value higher than their worth.
>- His understanding of value investing evolved over time, initially concentrating on balance sheet analysis but later progressing to smaller businesses and then good businesses with enduring competitive advantages and long growth trajectories.

Characteristics of Great Businesses:
>- Great businesses generate above-average returns on invested capital, fend off competitors, and have enduring competitive advantages.
>- They are rare and come in various forms across different industries.
>- Understanding the nature, dynamics, and competition of a business is crucial for identifying truly great businesses.

Moats and Barriers to Entry:
>- To limit competition, businesses should have moats, or barriers to entry, that discourage potential competitors.
>- Economies of scale and customer captivity are two key elements of a moat.
>- Economies of scale refer to the minimum size or market share required to be a viable competitor.
>- Customer captivity is crucial in contested markets and is influenced by unique technology, brand loyalty, and other factors.

Assessing Moats:
>- To assess the strength of a moat, considering the time it takes to gain market share is crucial.
>- In contested markets, where only a small portion of market share changes hands each year, it can take decades or even centuries to achieve a substantial market position.

Valuation and Long-Term Returns:
>- If a great business is purchased at a discount to its intrinsic value, the investor has a margin of safety and potential for higher returns if the business performs as expected.
>- Over time, the returns from owning a great business align closely with the actual business returns to capital invested in the business itself.

Role Models and Influence:
>- Li Lu considers Charlie Munger his most influential role model, not only in investing but also in life.
>- Munger’s steady composure, commonsensical approach to problems, and ability to maintain equanimity over seven decades were particularly inspiring.

Competitive Dynamics in Business:
Scale economies can provide a competitive advantage, but it can also make management more challenging. The consumer side of a business, including brand loyalty and product addiction, is important but can change over time. Innovation and generational shifts can lead to changes in consumer preferences. Great businesses change over time, and no business can maintain a competitive edge forever. The most fascinating aspect of competitive dynamics is the constant change, requiring management teams to reallocate capital to maintain a competitive advantage.

Investment Approach:
Look for smaller businesses with a small market share that can dominate due to a certain dynamic, such as a network effect. As an investor evolves, they can begin to look for bigger businesses that they can also understand. The size of a business is not always the most important factor, as bigger businesses can still grow at a robust pace and become even more entrenched.

Key Investment Criteria:
Focus on studying industries and specific companies rather than following the actions of other investors. Seek out successful companies and try to understand the reasons behind their success and whether it can be sustained. Maintain intellectual honesty and recognize the limits of one’s knowledge and competence. Insist on knowing a particular business inside and out to the point of being able to predict its outcome over a long period, such as 10 years.

Investment Selection and Patience:
Only select investments after careful study and understanding, leading to a high degree of confidence in their future performance. Be prepared to hold investments for a very long time, as truly good and well-understood businesses are rare. Demonstrate a willingness to buy more of an investment as its price goes down, indicating a strong understanding and confidence.

Navigating Extreme Market Conditions:
Don’t focus too much on the market unless it reaches extreme levels. The current market period is quite remarkable in terms of liquidity, interest rates, and slow growth. To deal with extreme market conditions, it is important to study them carefully and be prepared to adjust strategies accordingly.

Key Insights and Valuable Lessons Learned:

Navigating Uncertainties:
Instead of attempting to predict historical patterns, focus on selecting companies that can endure through thick and thin, regardless of the business environment.

Impact of Management:
Management plays a significant role in many companies, shaping the culture and driving performance. However, in certain exceptional businesses, management may have minimal impact, as the business dynamics allow for success even with relatively average leadership.

Uniqueness of Exceptional Businesses:
Truly exceptional businesses are rare, and their success factors can vary greatly. Each company must be individually evaluated to deeply understand its strengths and weaknesses.

Thorough Research and Understanding:
To accurately predict a company’s outcome over a long period, it is essential to conduct extensive research, ask probing questions, and study the business closely over time.

Financial Crises as Constant Phenomena:
Financial market booms and busts have been a continuous pattern throughout history, driven by human nature and instincts such as greed and fear.

Human Instincts and Market Behavior:
Humans often make decisions based on hard-wired instincts rather than rationality, leading to market swings and extreme reactions.

Harnessing Volatility:
By expecting financial crises to occur, investors can seek opportunities in companies capable of not just surviving but also thriving in volatile conditions.

Anti-fragility and Discounted Opportunities:
Focus on identifying businesses that can benefit from market downturns. When favorite companies are on sale due to market conditions, having the financial resources to invest more can be advantageous.

Emotional Discipline and Detachment:
Successful investors must remain emotionally detached in the face of market volatility. They should not be overly affected by significant portfolio declines or swayed by others’ quick financial gains.

The Power of Patience and Long-Term Perspective:
Investments should mirror the actual long-term progress of businesses rather than short-term fluctuations. Investors should not be swayed by short-term euphoria or market crashes, and should focus on long-term results.

Mr. Market: To Serve, Not Instruct:
Mr. Market is a representation of public sentiment, and should be seen as a tool rather than a director of investment decisions. Extreme market movements can provide opportunities for those who have a deep understanding of the underlying businesses.

The Importance of Understanding Businesses:
Investors should have a deep understanding of the businesses they invest in, beyond superficial knowledge. Pretending to understand will lead to vulnerabilities during market downturns, while true understanding allows investors to take advantage of opportunities.

John Deere: An Example of Resilience:
John Deere serves as an example of a company that has shown resilience in the face of crises. Despite a 35% demand drop in 2013-2014, the company’s profit margin remained at half of its pre-crisis level, demonstrating significant improvement.

Importance of Learning to Fish over Giving Fish:
Li Lu emphasizes the value of teaching individuals how to fish rather than merely giving them fish, encouraging a mindset of self-sufficiency.

Generalist vs. Specialist Approach:
In the world of business, it’s essential to be a generalist, fostering a curious and open-minded approach to various industries. However, when investing in specific companies, it’s crucial to become a specialist, possessing a deep understanding that surpasses that of the top management team.

Constant Evolution and Expansion:
The key to success in investing lies in continuous learning and expanding one’s circle of competence over time. Embracing this growth mindset ensures that investors remain relevant and successful in a dynamic business landscape.

Asia’s Growing Importance in the Global Financial System:
Li Lu’s prediction from 2010 has come to fruition, with Asia and particularly China playing an increasingly significant role in the global financial system. This trend is expected to continue in the coming decades, driven by the robust dynamics already in place.

Trade Growth and China’s Economic Transformation:
Contrary to popular belief, China’s trade growth has slowed in recent years, indicating a fundamental shift in its economy. China has transitioned from an export-oriented economy to a more consumer-driven one, mirroring the growth trajectories of developed economies.

China’s Emergence as a Dynamic Consumer Market:
China is poised to become the world’s most dynamic and fastest-growing consumer market, with a middle class that is increasingly demanding and sophisticated. This consumer-driven growth presents unique and attractive opportunities for global investors.

Challenges and Opportunities in China’s Service Sector:
While the service sector in China is still developing compared to developed economies, it presents a wealth of opportunities for investors. The financial services industry, in particular, is poised for significant growth due to conducive government policies and the opening up of the market to global firms.

China’s Undervalued Market for Value Investors:
China remains an attractive market for value investors due to its underdeveloped state and the presence of inefficiencies. Patient and experienced investors can capitalize on opportunities presented by fast trading and high turnover rates.

China’s Growing Service Sectors:
China’s rapidly growing economy features significant growth across several sectors including healthcare, education, wholesale & retail distribution, and personal services.

Investment Opportunities in China:
Li Lu sees abundant investment opportunities in diverse sectors, including housing, shelters, support, and value-driven companies in various industries. Skilled investors can find value in any market, but a dynamically growing economy like China, with its high growth multiples and market inefficiencies, presents even more enticing opportunities. Government reforms and initiatives to improve market efficiency further enhance these investment prospects.

Reforms in China’s Financial Markets:
China’s financial markets are undergoing reforms, moving from an approval-based IPO model to a registration-based model similar to the United States. This transition aims to make the financial markets more representative of the real economy and reflect the shift from an export-driven economy to a consumer demand-driven economy. The shift in financing models from primarily bank-based to direct financing through fixed income and equity markets will further develop the financial sector. Opening up financial services to both domestic and global players is expected to create more opportunities as the market matures and attracts institutional investors.

Local Service Businesses and Banking in China:
Unlike developed economies with large service sectors where firms tend to be locally financed, China’s banking regulations differ. Only a limited number of banks have national deposit-taking mandates, while other financial institutions are restricted to specific local regions. This regulatory regime creates an oligopoly-like status for deposit-taking, which is crucial for capital sourcing. Understanding Chinese banking regulations is paramount for investors in this sector, as it significantly influences the dynamics of national versus local or regional banks and other financial institutions.

New Trends in Value Investing:
Value investors search for companies that exhibit significant changes, primarily driven by rapid technological advancements.

The Technological Wave:
The invention of semiconductors, particularly integrated circuits, marked the start of a significant technological wave around 40-50 years ago. This wave led to the development of personal computers, enhancing computational power for the general population. Communication technologies evolved, culminating in the invention of the internet approximately 25-30 years ago, followed by mobile internet. The intersection of computing, omnipresent connectivity, and instantaneous communication led to the emergence of artificial intelligence and the data economy.

Impact on Businesses:
This wave of technological change has fundamentally altered the business landscape, affecting all types of industries. Investors must be aware of these significant changes to make informed investment decisions.

Investment Strategies:
Investors can navigate these changes by investing in companies that are: Well-insulated from technological disruptions. Led by management teams capable of adapting to technological changes better than competitors. Leading or enabling technological changes, positioning themselves to benefit from these advancements.

Understanding Technological Changes:
Investors don’t need to be experts in technology, but they should have a broad understanding of major technological changes. Venture capitalists, in particular, should study industry trends and assess their impact on the businesses they investigate.

Ongoing Revolution:
The technological revolution initiated by the invention of semiconductors is still ongoing, with the current wave centered around neural network-based artificial intelligence and the associated data economy. Investors can expect to see continued advancements and adaptations in industries as technology evolves.

Li Lu has invested in technology startups in the past and finds it fascinating, but he believes predicting the impact of technology is difficult due to the rapid pace of change. The car industry is undergoing significant changes due to four major trends: electrification, ride-sharing, autonomous driving, and intelligent design. The combination of these trends has attracted more competition and heated the competition in the industry. Against the backdrop of climate change and the carbon-neutral revolution, the car industry is being transformed, and its long-standing structure is being challenged. Although the industry is large and offers significant opportunities, the competition among players is becoming increasingly intense due to the economies of scale required for success. It is still too early to predict the ultimate winners in the industry, but the major trends driving these changes are expected to persist. Li Lu believes that in the next five years, the number of electric cars sold will increase significantly. With various countries declaring deadlines to phase out gasoline-powered vehicles and China following suit, these trends are expected to become even more prominent in the future.

Advice for Value Investing
Owner’s Mentality: Approach investing as if you own 100% of the company and need to understand every aspect of its operations. Intellectual Honesty: Be honest about what you know, what you assume, and what you don’t know. Only form a view after considering the best opposing arguments. Study Business History: Study the history of businesses and great businessmen to develop better judgment on opportunities and fundamental characteristics of companies.

Investing in China
Government Role: Understand the role of the Chinese government in the economy and market, which differs from Western markets. Zero-Sum vs. Non-Zero-Sum: Value investing becomes possible in China due to sustained compound economic growth, driven by the combination of free-market enterprise and modern science and technology. Political Component: Political democracy is not a prerequisite for sustained investment returns in China. Stability in the overall political environment is more crucial.

Personal Interests
Asian American Community: Li Lu expresses concern over the increased anti-Asian hate crimes and fears within the Asian American community. Chinese Exclusion Act: The recent rise in anti-Asian sentiment is reminiscent of the Chinese Exclusion Act, leaving many Chinese Americans feeling like they are being excluded again. Changing the Paradigm: Li Lu is committed to finding ways to change the current paradigm and improve the well-being of Asian Americans in the United States.

Li Lu’s Personal Experience:
Li Lu expresses his gratitude for the opportunities and success he has achieved in America, despite being an immigrant with limited resources.

Definition of America:
Li Lu defines America not by geography, culture, or religion but by a set of ideas and ideals. He believes that anyone can become American if they embrace these ideals.

America’s Imperfect Experiment:
Li Lu acknowledges that America’s history is marked by blemishes and mistreatment of minorities, particularly African-Americans.

America’s Unique Structure:
Li Lu emphasizes that America remains the only country inspired and constructed by a set of ideals. He calls on everyone to embrace their better angels and suppress their worst instincts to uphold these ideals.

Asian-American Community’s Role:
Li Lu believes that the Asian-American community must unite to combat anti-Asian discrimination. He highlights the need for the entire American community to come together in this fight.

New National Organization:
Li Lu co-founded a new national organization to serve Asian-Americans in their pursuit of belonging and prosperity, free from discrimination, slander, or violence.

Funding for Asian-American Causes:
Li Lu emphasizes the need for increased funding for Asian-American causes, as only 0.2% of philanthropy in America is currently directed towards them.

Asian Americans’ Role in the Global Economy:
Li Lu sees the Asian-American community as playing an increasingly critical role in positioning America as the new Pacific economic power. He believes their integration into American society will help in this process.

Conclusion:
Li Lu thanks Columbia University for the opportunities it has provided him and expresses his commitment to continuing the American experiment.