Charlie Munger Handed His Family Fortune Over to The Chinese Warren Buffett Who Flipped It Into $400 Million — ‘We Made Unholy Good Returns’
Conviction, in the world of investing, is often spoken about, but rarely demonstrated with substantial action. The late Charlie Munger, former Vice Chairman of Berkshire Hathaway, proved his belief in talent by backing investor Li Lu with tens of millions of dollars from his personal fortune.
A Vote of Confidence
Munger first met Li Lu at a Thanksgiving dinner in 2003. While Li’s background – fleeing China after the 1989 Tiananmen Square protests and subsequently earning degrees at Columbia University – was notable, it wasn’t the deciding factor for Munger. Instead, Munger was struck by Li’s inherent “capitalist aptitude,” as he described it to the Financial Times.
Himalaya Capital and Early Success
In 2004, Li Lu launched a new fund under the name Himalaya Capital. Munger entrusted him with $88 million, specifically advising a long-term value investing strategy over short-term trading. This decision proved remarkably successful. By 2023, the initial $88 million investment had grown to roughly four to five times its original value, generating what Munger termed “unholy good returns.”
A Singular Trust
Munger’s confidence in Li Lu was exceptional. At the 2018 Daily Journal annual meeting, he stated he had only ever entrusted funds to one outside manager in his entire life: Li Lu. He acknowledged finding another individual with similar qualities would be exceedingly difficult.
Strategic Investments
Li Lu’s investment strategy focused on identifying opportunities where competition was less intense. Two key investments exemplified this approach: an early position in Kweichow Moutai, acquired when the stock traded at a low multiple of four to five times earnings, and a significant investment in BYD, initially a battery maker, in 2002. Berkshire Hathaway later took a 10% stake in BYD in 2008, a decision Munger initially approached with skepticism but ultimately acknowledged as a “minor miracle.”
The Importance of Independent Thought
For Munger, the core of Li Lu’s success wasn’t tied to geography or market trends. It was about independent judgment, discipline, and the ability to remain rational when others were not. Following Munger’s death, Li Lu described him as the “enlightened embodiment of modern-day Confucianism,” highlighting the ethical framework Munger believed was essential to successful capitalism.
Frequently Asked Questions
What was the initial investment Munger made with Li Lu?
Munger initially entrusted Li Lu with $88 million to manage in 2004.
How did Li Lu’s investment perform over time?
By 2023, the initial $88 million investment had grown to roughly four to five times its original value.
What qualities did Munger admire in Li Lu?
Munger admired Li Lu’s “capitalist aptitude,” independent thought, discipline, and ability to remain rational.
Considering the emphasis Munger placed on identifying exceptional talent and trusting independent judgment, what role do you believe these qualities play in long-term investment success?