Thread by @PhillipsRelic

#LiLu Fireside Chat - Value Investing in China
Columbia Business School
The philosophy of value investing is relatively simple. The practice is hard.
In the beginning I looked for value on the balance sheet (cigar butts). In time that evolved. /1

Greatest input from Charlie Munger was beyond investing - it was a role model in life. "My role model has never failed me and has continued to inspire me." /2

To retain rational compulsion and common-sensical approach is extremely hard and against natural tendencies.

Long term compounders are also against the natural order; trick is to own them for long periods but best to buy them at a discount to intrinsic value. /3

Consumer brands - important to have a consumer addiction, loyalty; such brands are good for a long time until they're not good. Brands get tired and old. New generations don't want the same brands as their parents. All great businesses change over time. /4

At Himalaya they spend most of their time studying industries and companies that are successful in those industries and trying to understanding how they became successful.

Intellectual honesty is critical - know the edges of your circle of competence. /5

Wait for prices to come to the strike zone. Often they don't, which can be frustrating.

When we understand companies we tend to own them for a long period of time and when they go down in price we buy more. /6

As a product of evolution we humans are not very good at being rational. We are governed by hard-coded instincts looking for zero sum and fast money and we get scared when things move against us (greed and fear). Money evokes primal instincts. /7

Booms & Busts: Look for businesses capable of working through and thriving in crisis (antifragile). In a bust, if you have money buy more. If you don't, it's a hallmark of a good investor to ride it out. Same applies when everyone around you is making fast money - ride it out. /8

Investment returns will eventually mirror business returns.

Temperament test: Returns should come gradually over a long period of time.

/9

As an investor you want to understand changes at your companies. You need to be well aware of mega tech trends. Current wave started with semi conductor (integrated circuit boards), through computers, communication technologies and Internet. /10

Intersection of compute & omnipresent / instantaneous communication has led to AI and the data economy and has fundamentally altered the business landscape.

Against this, you want well-insulated companies, management that can adapt or companies leading or enabling change.

/11

Neural network based AI and the data economy is the newest innovation. All of this requires different aptitude and domain expertise. /12

Car industry simultaneously impacted by electrification, ride sharing, autonomous, and intelligent design. Attracting new entrants. Winners will need scale to win. Too early to know who will win but not too early to see the trends. Mega trends here to stay. /13

Three important factors for value investors learning today:

1) Need to adopt owners mentality. Imagine your late uncle bequeathed you a business - it's yours now - figure out how it works and how to run it; continue to learn and evolve.

/14

2) Maintain intellectual honesty. The market is witness to your dishonesty & pretensions and is designed to crush you.

3) Study business history - study business leaders and histories of businesses.

/15

For the longest time, human affairs have been characterized by cycles. Something unique happened at the beginning of the industrial revolution and allowed for the rise of continuous, sustained compounded economic growth. /16

What produced the phenomenon was free enterprise combined with modern science & technology - a paradigm shift. Any economy with this magic formula can have compounded sustained growth. Allows shift from zero sum to win-win games. /end