Li Lu: Global Value Investing in Our Era
Summary
李录把中国当前的困境定义为工业起飞后的“2.5阶段”，而不是中国独有的终局性危机。 Youth unemployment among 16–24-year-olds is around 20%; 80%–90% of jobs are provided by the non-state sector and individuals, while real estate still accounts for about 60% of household wealth. Supply-side policy cannot solve a contraction in demand, leaving consumer confidence, private-sector confidence and official incentives weakening at the same time; “involution” is extreme competition in a deflationary environment.
中国能否跨越中等收入阶段，最关键的经济指标不是一次刺激的力度，而是个人消费占GDP的比例能否从约40%持续上升。 The savings rate has risen from 40% to around 50%, leaving a large pool of capital trapped in the state banking system. India’s consumption share is around 60% and the US exceeds 70%. Li Lu therefore treats “spontaneous, organic and sustainable economic growth” as the KPI of modernization, with consumers, entrepreneurs, officials, foreign capital and international relations all potentially serving as the “chicken that lays the egg” that can ignite the entire chain.
现代资本市场的核心产物不是资金，而是信用；香港则是中国已经拥有、却尚未充分利用的制度资产。 From Venice and the Netherlands to Britain after 1688, financial systems pooled small savings from ordinary people into long-term productive capital. Hong Kong combines the law, dispute-resolution mechanisms, professional intermediaries and international trust required for this role, but “credit takes a very long time to build and can be broken in a very short time”; if its independence continues to erode, the consequences are incalculable.
许多政策困惑源于农业文明留下的静态观念与现代经济复利增长之间的错位。 Land once determined the space available for survival; today, market scale and the circulation of technology, labor and capital matter more. The distinction between the “real” and “virtual” economies has also lost meaning: roughly 1M–2M combat drones on the Russia-Ukraine battlefield are operated by gamers, while Nvidia has not produced a single wafer in 31 years yet has become infrastructure for gaming, cloud computing and AI.
价值投资真正守护的不是现金、土地或某个静态数字，而是投资者在其消费经济体中的购买力占比。 “Macroeconomics is what we must accept; microeconomics is where we can act.” Global investors should own the most creative companies in the most dynamic economies, while individuals should preserve their purchasing power where they actually consume; short-term macro volatility should not replace judgment about specific businesses.
价值投资并非只能在稳定年代奏效，它恰恰诞生并成熟于大萧条、战争和金融危机。 Graham lost 70% from 1929 to 1932, Keynes managed the King’s College fund from the front line of wartime Britain, and Templeton bought every US stock trading below $1 in 1939. During the Asian financial crisis that Li Lu experienced, most markets fell more than 70% and the worst fell more than 90%, yet “gold was everywhere.”
真正稀缺的不是发现短期低估，而是理解并守住能够长期复利的“圣杯”公司。 Li Lu held BYD for 22 years; the stock fell more than 50% at least 7 or 8 times and 80% once, while revenue rose from RMB1B to nearly RMB1T. He sold mainly after finding an error, a better opportunity, an extreme bubble or facing redemptions, while avoiding debt allowed him to withstand a 50% drawdown in the portfolio.
六条原则最终汇成同一个动作：在能力圈内，到“有鱼而且人少”的地方，以安全边际买入企业所有权并长期学习。 Mr. Market provides a service, not guidance. Value investors use price discovery to connect savings with the most productive companies rather than extract zero-sum gains from counterparties. “Investing is like fishing: first, fish where there are fish; second, never forget the first rule.”
Deep dive
1. The ten-year value-investing course ultimately comes down to an era-level question: can investors keep holding through confusion
Li Lu traced the course back to its starting point: 35 years ago, he encountered Buffett and value investing at Columbia University, which changed the course of his life. He started the course 10 years ago to give young people the same opportunity. By 2024, more than 1,000 people had applied to attend online.
In 2015 he discussed the outlook for value investing in China, and in 2019 he spoke about uniting knowledge and action. The domestic and international environment has changed radically over the past 5 years. Value investing is primarily bottom-up fundamental analysis, but companies always operate within a specific era; investors cannot pretend that macroeconomics does not exist.
2. Employment, falling wealth and deflation form three breaks in China’s confidence chain
Youth unemployment among 16–24-year-olds is around 20%, but of China’s 700M–800M employed people, 80%–90% of jobs are provided by non-state companies and individuals, with SOEs accounting for only around 10%. The employment problem therefore first reflects the condition of the private economy and entrepreneurs’ concerns about the security of their property and even their personal safety.
Real estate once accounted for around 70% of Chinese household wealth and still accounts for around 60%. Falling prices in property and capital markets directly weaken consumption capacity, consumer confidence and expectations for the future. Yet a contraction in demand is being met mainly with supply-side policy, which cannot stop deflationary pressure.
Li Lu’s explanation of “involution” is not ordinary competition but “extreme competition in a deflationary environment.” Competition during normal growth should form an upward spiral. Meanwhile, a tightening environment without positive incentives has produced “lying flat” across the bureaucracy, further weakening policy transmission.
3. Chinese manufacturing depends on global demand as the US questions why it should remain the world’s anchor
China accounts for more than 30% of global manufacturing value added, while domestic consumption absorbs only around half of its output; the other half must be sold overseas. Southeast Asia has become China’s largest export-trade partner, but many goods are merely transshipped through the region, with a large share of final consumers still in developed countries.
After World War II, the US maintained peace, freedom of the seas, international trade, capital flows and dispute-resolution mechanisms. By the estimate cited by Li Lu, it bears around 80% of global military spending while also serving as the world’s currency provider, buyer of last resort and consumer market.
American society now broadly questions whether that burden is worth bearing and believes China rose with the help of the “US-led order” only to challenge it. Whether that judgment is right or wrong, the policy consequences are already visible: who continues to provide peace, freedom of navigation and other global public goods has become an operating variable no Chinese company can ignore.
4. China is in a “Stage 2.5” after industrial takeoff, with the economy running ahead of institutions and human nature
Li Lu divides civilization into hunting civilization 1.0, agricultural civilization 2.0 and modern technological civilization 3.0. The adjustment period after industrial takeoff but before a mature modern economy is Stage 2.5. Germany, Japan, South America and parts of Southeast Asia have all passed through it; some crossed successfully, while others stagnated for decades.
Modernization is fundamentally the automatic, continuous and compound growth produced by combining a market economy with modern technology. But human nature has not fundamentally changed in roughly 200,000 years since the emergence of Homo sapiens, and governance structures, psychology and political institutions do not compound at the same pace as the economy.
Catch-up industrialization often takes only 30–40 years: Japan moved from the Meiji Restoration in 1868 to 1905, Germany from unification to World War I, and the US from the Civil War to the 1890s. The real challenge is digesting the huge gap that then opens between economic reality and inherited modes of governance.
5. Obsession with land drove industrial powers into war, while open postwar markets created “living space”
In agricultural civilization, wealth was determined by land and population and constrained by the Malthusian trap, making territorial expansion and defense the most powerful national imperatives. In 3.0, the growth engine shifts to market scale and the free movement of technology, labor, capital and other factors of production.
Li Lu views World War I and World War II as one conflict separated by a brief truce: industrialization amplified the destructive force of an ancient obsession with land. By the figures used in his lecture, World War I killed 50M–60M people and World War II caused global losses of more than 100M; none of the empires that entered the wars achieved their original objectives.
Germany and Japan failed to obtain growth space through war, but gained it through borderless markets after defeat and reform. Li Lu emphasizes that after the war the US returned the territories it had acquired, in exchange for building a trade and capital system based on its institutions. The danger is that nationalist psychology can still be easily reignited by territorial issues.
6. The policy divide between “real” and “virtual” has lost meaning as software controls the physical world
The critical equipment on the Russia-Ukraine battlefield has shifted from tanks and machine guns to intelligent drones. Li Lu says the battlefield involves roughly 1M–2M combat drones, operated mainly by gamers. The example makes the distinction between games as “virtual” and weapons as “real” impossible to sustain.
Software cannot simply be classified as part of the virtual economy either: without software, neither the global economy nor the Chinese economy could operate normally. The control, design and execution layers of modern production are now deeply nested within one another.
In the 31 years since Nvidia was founded in 1993, it has not produced a single wafer; manufacturing is handled by TSMC, and its largest customers before AI were gaming companies. Its market capitalization now exceeds the combined market capitalization of all listed companies in Germany and Italy. Li Lu acknowledges that it “may be full of bubbles,” but notes that only around 5 countries have stock markets with a larger total market capitalization.
7. An $18T economy cannot be directed item by item by a small group; government must become a service provider
China’s economy is worth around $18T, with more than 100M companies generating billions to hundreds of billions of dollars in complex decisions every day. The essence of a market economy is allowing entrepreneurs with a direct stake in the outcome to make independent decisions through competition, rather than having a small group plan every result.
China is the largest or second-largest trading partner of around 120 countries, which together account for more than 80% of the global economy outside China. China’s 1B private decisions affect the lives of billions of people worldwide, so Chinese government decisions appear on the front pages of major global media almost every day.
Li Lu argues that the government should continue moving from the command model of the planning era and the guidance model of the early reform period toward a republican, deliberative, supportive and service-oriented model. This is not only a question of domestic efficiency; it is also a practical requirement for respecting trading partners’ interests in global markets.
8. A 3.0 economy depends on the free movement of every factor; China’s biggest bottleneck is converting savings into productivity
Every voluntary transaction can produce “1+1>2,” while the exchange of knowledge can even produce “1+1>4.” The defining feature of a sustainably growing economy is therefore the full exchange of goods, services, capital and ideas, without long-term blockages.
Personal consumption accounts for only around 40% of China’s GDP, while the savings rate has risen from 40% to around 50%, leaving most funds in the state banking system. Li Lu’s view is that banks can provide funding but cannot perform the functions of risk capital and a complete credit system; there is no successful example, in China or elsewhere, of state-owned banks completing this allocation.
This is why one-off stimulus is insufficient: unless stimulus produces spontaneous and sustainable growth, it must be added year after year. The real problem is not a lack of social savings, but that savings have not yet been converted into new consumption, products, companies and long-term risk-bearing capital.
9. From Venice to Britain, capital markets’ key invention was turning strangers’ credit into productive power
Venice sustained a republic for 1,000 years with a population of only more than 100,000 and controlled key Eurasian trade from 1000 to 1500. Its institutional legacy included double-entry bookkeeping, joint-stock companies, insurance and early forms of modern banking, although its limited hinterland constrained industrialization.
After gaining independence in 1581, the Netherlands endured roughly 70 years of war yet carried around one-quarter of global trade in the 17th century. Limited-liability public companies, the Dutch East India Company, a central bank and a securities exchange emerged in succession, even producing the tulip bubble. Dutch per-capita GDP was more than 10x that of other European countries and remained among the global top 10 for the next 400 years; the Netherlands is still a major trading nation today.
The Glorious Revolution of 1688 constrained royal power and, through William III and Mary II, completed an institutional “merger” of the Dutch and English financial systems. Credit allowed Britain to pool global capital, issue debt several times larger than GDP without defaulting, and turn technological innovation into the first self-sustaining 3.0 economy.
10. Hong Kong is a financial-institutional “gift” China already possesses, but credit assets can be destroyed in a few moves
Hong Kong already has the key elements of a modern capital market: law and historical precedent, dispute-resolution mechanisms, professional credit intermediaries and trust accumulated over decades among international investors. Li Lu compares it with the Dutch financial system’s contribution to Britain, except that the former was a merger of equals while Hong Kong is more like an acquisition.
Hong Kong and mainland markets can operate in parallel, as Shenzhen’s early special economic zone did; Shanghai-Hong Kong Stock Connect is only the starting point. If fully utilized, Hong Kong could become the embryo for rebuilding China’s modern capital and credit systems rather than being forced into complete uniformity with the mainland market.
Li Lu’s warning is explicit: several recent measures have threatened the foundations of Hong Kong as an independent financial market. At least in capital markets and the rule of law, the principle of “50 years unchanged” should be implemented. “Credit takes a very long time to build,” but a handful of events can destroy it quickly; if the damage is not corrected in time, the consequences are incalculable.
11. “Chinese-style modernization” can be distinctive, but it cannot again pay the price of defying market logic
Drawing on Adam Smith’s observation in The Wealth of Nations, published in 1776, Li Lu reiterates that markets use division of labor and free competition to turn the incentive of “everyone for me” into the public outcome of “I for everyone.” The system is imperfect, but its successes and failures have been tested repeatedly over 400–500 years.
Most resource allocation should be left to people who are “close enough to hear the artillery.” Technological development is the result, not the cause, of a highly marketized economy. Security of person and property, procedural justice and legal constraints on government power are the preconditions for entrepreneurs to invest for the long term.
“Arbitrary enforcement,” “selective enforcement” and far-flung fishing expeditions are dangerous because if entrepreneurs can only seek help from higher administrative authorities rather than protect themselves through law, the credit chain cannot be built. China can explore its own path, but it cannot reject the common principles of modern market economies.
12. The KPI of modernization is endogenous growth, with personal consumption as the most organic and durable engine
Li Lu reduces the test of policy to one question: can the economy rely on “spontaneous, organic and sustainable economic growth”? Personal consumption accounts for around 40% of China’s GDP, versus around 60% in India and more than 70% in the US. If China moves toward 60%, its existing high savings could become a huge source of new demand.
Entrepreneurial spirit, consumer confidence, official incentives, foreign-investor trust, China-US and China-Europe relations, and the Hong Kong capital market are all nodes in the same chain. Asking which is the chicken and which is the egg is pointless: “every node is a chicken, and every node is also an egg.” Activating any one of them could set off a chain reaction.
He says that since September 2024 he has seen at least a significant policy shift, but he is not betting on a single predesigned lever. The household responsibility system began with several dozen farmers signing “blood pledges,” while Shenzhen ignited reform nationwide; pivotal changes in a large country often cannot be planned in advance, only enabled through experimentation.
13. Global markets are interconnected, but political organization remains stuck in the nation-state era
Li Lu regards the founding of the US as the greatest accidental factor in the history of 3.0 civilization: its vast geography and diverse population made it a common arena for different groups to explore the modern economy. Around 10% of the world’s population has entered a phase of endogenous, sustainable growth, but international relations have yet to develop a corresponding 3.0 institutional framework.
The “iron law” of the modern economy is that the largest market ultimately becomes the only market. Even with tariffs, barriers and third-country transshipment, economic ties reconnect. The global economy is moving toward a common market, while people’s culture, religion, psychology and national organization change slowly.
China’s current difficulties are therefore not unsolvable. Viewed over the long arc of modernization since 1840, Li Lu calls them “a storm in a teacup.” Investors do not need to predict the entire international system; they only need to find a lake “with fish and few people.”
14. Wealth is not a static asset but your share of purchasing power in the economy you need
Li Lu’s starting point for value investors is: “Take the world the way it is, not what we wish it to be, not what we want it to be. It is what it is, take it.” Macroeconomics is something we can only accept; the micro level is where we can act through companies.
British aristocrats may still own land and castles yet be relatively poor as labor and maintenance costs rise. Many castles survive only on admission tickets of around £5 per person, weddings or events. If land cannot be converted into a productive use, it can turn from an asset into a liability.
A “10,000-yuan household” from the early reform-and-opening period would no longer be wealthy today if it had left RMB10K in the bank. Buffett has also observed that the Millionaire of the past was roughly equivalent to the Billionaire of today. Static cash cannot keep pace with an economy that has grown hundreds of times in nominal terms.
True wealth is therefore an individual’s share of purchasing power in the economy where they are willing to consume. Even if the total “pie” temporarily shrinks, wealth is preserved under Li Lu’s definition as long as that share does not decline; if the share rises, long-term growth can exceed the economy-wide average.
15. The task of global value investing is to allocate purchasing power to the most dynamic economies and companies
Of the world’s 8B people, roughly the low teens percentage have entered a phase of endogenous growth, around half are in an intermediate transition that includes China, and the remainder are still at the early stage of industrial takeoff. This civilizational paradigm shift will take centuries; short-term waves do not change the long-term direction of compound growth.
Himalaya Capital’s fiduciary task is to find the most creative, competitive and growth-capable companies in the world’s most dynamic economies, using equity ownership to preserve and increase investors’ share of global purchasing power.
Individual investors have a somewhat different objective: they should preserve purchasing power where they actually need to consume. Many Chinese people do most of their consumption in China and do not need to deliberately own purchasing power in Europe or South America; global allocation cannot be separated from ultimate liabilities and living needs.
Brazil and Argentina were once counted among the world’s most promising economies, but repeated failures to cross the middle-income stage caused their shares of the global economy to fall steadily. Other countries continue to grow, turning stagnation itself into relative decline; that is the source of urgency.
16. The founders of value investing developed their methods in the worst macroeconomic eras
Graham began investing in 1926 and, after the Roaring Twenties, suffered a 70% mark-to-market loss from 1929 to 1932. He recovered the losses from 1932 to 1935, established a closed-end fund in 1936 and ran it until 1956, and published The Intelligent Investor in 1949.
US unemployment was around 25%, the economy contracted by roughly one-third to one-half, and the country then entered a world war that killed more than 100M people. Li Lu’s counterquestion is whether today’s investment environment is really more difficult than the 30 years during which Graham built his career.
Keynes managed the endowment of King’s College, Cambridge, from 1921 to 1946 and delivered strong results while Britain was on the front line of war. He placed greater emphasis on business quality than Graham, and Buffett and Munger later developed that orientation into a system of holding high-quality companies for the long term.
In 1939, Templeton used $10K to buy 100 shares of every stock in the US market trading below $1. Four years later, 100 of the 104 positions had risen sharply. The Templeton Fund, established in 1954, generated returns of more than 10x over the following 38 years and took value investing into global markets.
17. Absurd pricing in crises proves that even mature markets are far from permanently efficient
Li Lu bought his first stock in 1993 and launched Himalaya Fund in 1997, immediately encountering the Asian financial crisis. Major markets broadly fell more than 70%, with the worst down more than 90%. Despite the fund’s extreme volatility, those years became a period of high aggregate returns because “gold was everywhere.”
When the Korean stock market had fallen 80%–90% in dollar terms and the won had depreciated another 40%–50%, one fund manager went long POSCO at a P/E of only 2x while shorting Samsung Electronics at a P/E “as high as” 3x. That manager was Bill Hwang, who was later sentenced to 18 years for fraud and nearly brought down Credit Suisse.
The US market has also repeatedly failed to price assets efficiently. In more than 30 years in the industry, Li Lu has lived through several declines of more than 50%; during the 2008–2009 financial crisis, the US market fell even more sharply than China’s. The market dropped around 30% at the start of COVID, and Amazon once fell around 90% after the dot-com bubble burst.
18. Six principles connect ownership, margin of safety, circle of competence and the “lake with fish” into one system
First, a stock is not a trading slip but partial ownership of a company. Second, the neurotic “Mr. Market” is responsible only for quoting prices, providing a service rather than guidance. Third, the future is difficult to predict, so “cheap is the hard truth” and investors must preserve a margin of safety.
Fourth, high-quality companies can continuously increase intrinsic value by earning returns on capital above their industries and competitors, but investors must know what they understand and what they do not. The value of a circle of competence lies not in its size but in the clarity of its boundary and its ability to support genuine long-term ownership.
The fifth principle comes from Munger: “Investing is like fishing.” The large lake near Star Island had almost no fish, but a guide named Leroy had run a bait business for 2 generations and knew the species, locations and seasons of the fish in every small lake. The lake he chose had plenty of fish and almost no other anglers all day.
“First, fish where there are fish; second, never forget the first rule.” Investors do not need to study Minnesota’s more than 10,000 lakes or master every macro variable. They should look for local markets they understand, where competition is limited and mispricing is therefore more likely. The sixth principle is using these holdings to preserve and increase one’s share of purchasing power.
19. Selling depends on errors, opportunity cost and fiduciary constraints, not an isolated high valuation
Li Lu identifies 4 circumstances for selling: exit immediately after discovering that the original judgment was wrong; sell when another opportunity offers better risk/reward and downside/upside; sell when the market enters an extreme bubble; or raise cash under the constraint of a fully invested portfolio facing client redemptions.
Valuation has a time dimension, and investors tend to magnify the short term while ignoring the long term. Companies with durable competitive advantages, large growth runways and excellent returns on capital are the “Holy Grail.” Once investors truly find and understand one, they should not discard it merely because of short-term overvaluation; growth may far outpace the original valuation while they wait to buy back in.
Even a “fortress company” such as Berkshire, run by top investors, has fallen more than 50% 3 or 4 times. The ability to hold does not depend on slogan-level courage; it depends on whether the investor genuinely understands its many assets and subsidiaries.
Himalaya held BYD for 22 years. During that time, the stock fell more than 50% at least 7 or 8 times and 80% once, while revenue rose from RMB1B to nearly RMB1T and continued growing. Li Lu insists on avoiding debt so that he is not forced out when the portfolio falls 50%; extreme volatility reveals whether a circle of competence reflects genuine understanding or merely “genuine recklessness and genuine luck.”
20. Cheap must correspond to understandable value; lifelong learning is what turns one margin of safety into compound growth
Li Lu’s first “10-bagger” had a market capitalization of around $300M and book value of around $500M, of which $400M consisted of shares in the listed company TCI. The remaining $100M of assets later proved to include highly valuable satellite-communications and wireless-network licenses. The low price gave him room for error while forcing him to study the cable-television industry in depth.
P/E alone cannot answer whether a stock is cheap: investors must determine whether earnings are at a cyclical peak, reflect one-off profit, or represent stable and sustainable long-term earnings. The investor pays a price but buys value; long-term ownership requires understanding, not “holding for the long term” for its own sake.
Munger read Barron’s for 50 years and found only one investment idea, on which he first made nearly 10x and then generated returns of more than 10x by investing in Himalaya. At 99, he bought another stock with a “politically incorrect” profile that was severely mispriced—his only investment in the previous 10 years—and lived to see it double. Skill can compound; patience alone cannot substitute for understanding.
21. Markets need optimistic, credible entrepreneurs and value investors who accept fiduciary responsibility
When Li Lu met Bezos, Amazon had just over 100 people and had rented its first warehouse. The defining trait of successful entrepreneurs is choosing to see the half-full part of the bottle, remaining optimistic and refusing to give up. In a compounding 3.0 economy, “rising tide lifts all boats,” and belief in the future is rewarded by growth itself.
Markets cannot determine in advance what type of person will succeed. Li Lu believes that a Musk-like figure might not be readily accepted in China, while it is impossible to know whether Jack Ma could succeed in today’s environment. Tolerance, room for freedom, continuous learning and integrity are what allow different types of people to prove themselves through competition.
Asked whether investors are parasites, he answers no. Public markets use price discovery to connect an ordinary person earning RMB1,000 a month and willing to save RMB500 with the most productive companies through a credit chain of lawyers, brokers, analysts and managers. Prices can deviate from value in the short term, but must re-anchor to value over the long term.
When BYD’s share price collapsed repeatedly, the presence of long-term value investors reduced the risk of a funding-chain failure during crises. Bringing in a credit investor such as Berkshire in 2010 also reduced the friction of its growth. Li Lu summarizes the industry’s responsibility as “turning common sense into consensus”: the best investors take only what is earned fairly, serve as partners to companies and form an indispensable part of the modern economy.
Munger was still studying and investing before his death, making a final investment at 99 and quietly saying goodbye to his family on his last weekend. Li Lu closes with the conclusion that “macroeconomics is what we must accept, while microeconomics is where we can act—and act decisively”; value investing allows people to “breathe with the times and grow with them.”