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Newsletter - June 3rd, 2023

Dear Reader,

Attached is our latest list of stocks generated from basic value screens (low p/e, ev/ebitda, debt/equity, etc.), which don’t meet our investment criteria - and our reasoning.

This may help you avoid a few ‘value traps’ or stocks that aren’t sufficiently attractive compared to the opportunities available today.

For reports of stock ideas that pass our quantitative and qualitative standards, join at the link below:


Li Lu's Talks


Li Lu

Li Lu is an elite investor - one of the very best. (He also manages Charlie Munger's private investments.)

He rarely talks in public, so it's worth listening to whatever you can get your hands on.


Peking University Talk (in Mandarin)

Listening to this lecture requires some effort because it's in subtitles and over 2 hours long - but it's so packed with insight, we strongly recommend a full listen. His philosophy of investing and life syncs with us personally.

Li goes over the origins and nature of the stock market. He gives a holistic picture of the market: the zero-sum nature of speculation, where value investors (<5% of market players) fit in, and how they can capture maximum market rewards. It's clear he has a robust understanding of his field - a master of investing.

What struck us were:

1) The owner's mindset: Li's anecdote of getting attached to his companies once he owned the stock was thought-provoking. As opposed to being an owner of securities, really adopting a business owner's mindset "changes the channel". When you consider it your baby, you care more about every aspect of your companies - you just become more curious.

At the same time, you don't want to get too emotional about stocks - a certain detachment (via diversification) may be necessary for some to get the best results.

2) The importance of playing the long game and having a strategy where you're fully invested in a diversified group of the best bargains at all times to get the best rewards.


Columbia University

Another good interview between Li and his former Columbia professor. Note this was a few years ago - before US-China geopolitical tensions worsened.

1:11:15 Weakest Link

Securities markets will strike you at your weakest spot - it's designed to catch you out. This could be ignorance of important facts, faulty reasoning, and bad thinking in general.


San Francisco University

Li states two examples of his personal investments, which are interesting:

15:45 Russian Oil

Li recounts purchasing a distressed Russian state oil company in the early 90s after the Soviet economy opened up to free-market capitalism. He purchased the company when it was selling at 10 cents/oil barrel in proven reserves when the market price was $20 (over a 99% discount).

Later he says if the discount dropped to even 80%, he wouldn't have been comfortable given the risks in the Russian economy.

22:15 Non-voting Korean Common

Non-voting stocks were selling at 70-80% discounts to voting stock. These represented enduring franchises with growing earning power trading at fractions of true value - virtually no other difference to voting stock.

Look for corners of the market where extreme price declines offer you large margins of safety - where even if things go wrong, you come out okay.


Columbia University - Walkthrough of Investments

This lecture provides a detailed walkthrough of his personal investments with students - real gems:

14:30 Timberland

Li walks through his investment in Timberland.

Worth a full listen - he focused on low multiples of operating earnings backed by liquid and other assets.

His mode of investigation is fascinating - he went to the owner family's community and researched their reputation and integrity.

This guy's research process is on another level - worth aspiring to.

With his level of effort and knowledge, it makes perfect sense to concentrate rather than diversify.

Note that he applies concentration in two scenarios: 1) where the margin of safety is extreme (like the Russian oil example); or 2) where he can forecast the future with confidence i.e. Buffett-like.

46:00 Korean investment

Li looked for large discounts to liquid assets and low multiples of earnings. The Korean stock was trading for $60mn market cap with $30mn in pre-tax earnings, $70mn in current assets (almost all cash and securities), and $240mn in book value. Market values of assets were 2-4x book. Another fascinating example worth listening to in full.

1:14:15 Value Investors and the Market

"If you demand a large margin, why will anyone sell to you?"

Worth remembering that the market was built on exploiting the gambling instinct to build productive enterprise. The investor's job is to intelligently exploit the excesses of others' speculation.


Until next time, Cheers!


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