Li Lu Practices Self Defence

As a value investor, you think of yourself as an owner of a business rather than as the owner of a piece of paper … it’s almost self-defence to demand a margin of safety.
— Li Lu

Li Lu has one of the most fascinating life stories of any investor. He grew up during China's disastrous Cultural Revolution. In 1989, he was a leader of the democracy protestors in Beijing's Tiananmen Square. He managed to dodge the Chinese Communist troops who crushed the movement, and then escaped overseas.

He came across Warren Buffett by accident, began investing, ended up managing Charlie Munger's family money and more than quadrupling its value, and earned himself a multi-billion dollar fortune.

Lu borrows the phrase “margin of safety” from Benjamin Graham, who once said the whole craft of investment could be packed into those three words. We may be wrong about a company or unexpected events may affect its share price. Just as a bridge designer adds extra tons of load capacity, an investor buys only when price sits comfortably below value.

Lu's book, Moving the mountain: My life in China from the cultural revolution to Tiananmen Square, is out of print, but you can read many of his writings for free at the website of his investment company, Himalayan Capital.

Meanwhile, Lu often recommended Benjamin Graham’s The Intelligent Investor, the book that first introduced the concept of margin of safety to the investing world.

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