Another Berkshire Hathaway CIO Candidate?

A few months ago, we postulated that Michael Burry may be one of Berkshire Hathaway's future CIO candidates. Today, I read an absolutely incredible post by Tariq Ali of Street Capitalist on Li Lu, who many in the value investing community believe could be one of the next successors to Warren Buffett in allocating Berkshire Hathaway's capital.

Some background (notes to the meeting embedded below): A question was asked of WEB and Charlie Munger on how the 4 potential candidates for CIO fared in 2009. Warren Buffett, as usual, gave an answer without really answering anything (no offense WEB). Charlie Munger on the other hand laid out that one of the candidates was up 200% in 2009 with no leverage.

It is known that Li Lu manages some of Charlie Munger's billions of dollars. It is also known that Li Lu takes massive positions. And finally it is also known that Li Lu was long BYD, the Chinese company that Berkshire owns a large stake it, in size, in 2009. BYD was up over 400% in 2009.

Nonetheless, Tariq laid out some fascinating notes from a talk Li Lu gave at Columbia Business School a few years back. Here are some choice quotes (visit his site for the entire post).
  • "If you are a value investor, you are probably genetically mutated and comfortable being in the minority. This is unnatural to human beings. You have to be comfortable being by yourself. You have to adopt the idea that you are right because your reason and evidence, not because others agree with you."
  • "Download every court document lawsuit. Read it. You NEED a very curious mind to figure out WHAT is happening. Dig every single time. READ EVERYTHING."
  • "You make a mistake when you have not finished your work but like it enough. You start betting on probabilities instead of real analysis."
And to give you a sense of the legitimacy of Li Lu, here is a snippet from an old New York Observer article (my emphasis):
Mr. Li is 32 years old. He wears Armani suits that he buys at a factory outlet; he lives in one of those bland modern towers on the East Side. While other Wall Street hotshots his age may have endured the trauma of not getting into the business schools or investment banks of their choice, Mr. Li has survived poverty, separation from his family (his parents were forced into labor camps) and a devastating earthquake. When he escaped to America after hundreds of his fellow protestors were killed in Beijing, he was one of the most wanted dissidents in China.

His clients hope they'll see big profits, but they also seem to be investing in the future of Mr. Li himself. Jerome Kohlberg Jr., a founder of the leverage buyout monolith Kohlberg, Kravis, Roberts & Company, said his decision to invest with Mr. Li "wasn't my usual cautionary thing, but my admiration prevailed … I don't know about others, but I would like to see him succeed and eventually help bring China into the 21st century and be a democracy, and I think he, by then, will be uniquely qualified."

Others who have invested in Mr. Li's new hedge fund include: Stanley Shuman, executive vice president at Rupert Murdoch's deal maker, Allen & Company; Jack Nash, co-founder of Odyssey Partners L.P.; Robert Shaye, chief executive of New Line Cinema Corporation; Robert Bernstein, former chief executive of Random House Inc. and a founding chairman of Human Rights Watch; and his son, Tom Bernstein, president of Chelsea Piers Management Inc. And proving that it's a chic investment, there is also Sting, the sensitive rock star and rain forest activist, who has kicked in with at least a million of his own.
Talk about a strong list of investors to get your fund up and running. Does anyone have Sting's number? I am looking for some seed capital...

Enjoy the notes below.


Anonymous,  5/06/2010  

Please use good manners in showing the meaning of acronyms used.

Anonymous,  5/06/2010  

^please use common sense in determining the meaning of said acronyms for yourself

valueinvestor2010 5/06/2010  

just stumbled across a link of Li Lu interview with Charlie Rose
unfortunately not about Investing, about his days in Tiannamen etc
but gives some idea about the guy
Cheers - you have a phenomenal site - keep it going dude


hunter [at] distressed-debt-investing [dot] com

About Me

I have spent the majority of my career as a value investor. For the past 8 years, I have worked on the buy side as a distressed debt and high yield investor.