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WSJ: Li Lu emerges in Berkshire succession plan


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By Susan Pulliam

Of THE WALL STREET JOURNAL

 

Twenty-one years ago, Li Lu was a student leader of the Tiananmen Square protests. Now a hedge-fund manager, he is in line to become a successor to Warren Buffett at Berkshire Hathaway Inc. (BRKA, BRKB).

 

Mr. Li, 44 years old, has emerged as a leading candidate to run a chunk of Berkshire's $100 billion portfolio, stemming from a close friendship with Charlie Munger, Berkshire's 86-year-old vice chairman. In an interview, Mr. Munger revealed that Mr. Li was likely to become one of the top Berkshire investment officials. "In my mind, it's a foregone conclusion," Mr. Munger said.

 

(This is just the first two paragraphs of a much more extensive story that will be available on The Wall Street Journal Web site, WSJ.com.  Check for it soon.  I do not yet have a link.)

 

 

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this is scary, I saw the Greenwald lecture with Li Lu and there were some things that I did not like that were said by the speaker. If this is true, I'm dumping a % of my Berkshire shares, but he may only be one of several managers.

 

The article goes on to say that Mr. Buffett says the job could be filled by two or more managers who would be on equal footing and divide up respsonsibility for managing Berkshire's $100 billion portfolio.

 

I also watched the Columbia/Greenwald lecture with Li Lu and nothing stands out in my mind as being objectionable.  So, I am curious, what did Li Lu say that you didn't like?

 

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I thought his temperament got a bit out of hand when the students didn't answer his questions, he even seemed to get angry and said something like, 'Bruce what are you teaching your students' and Bruce is a very competent instructor. It may be nothing at all, but I watch for every clue about a person's personality.

 

 

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I don't know about Lu's actual portfolio results too much.  I know he hit it big with BYD and Munger was very specific about his 200% return in 2009, but I'm just wondering what Lu's results were like in his selections.  

 

Lou Simpson's portfolio is somewhat transparent with the 13-HR filings Berkshire has to make, and the size of the investments Simpson makes, so you can see that Simpson has a high batting average rather than just a few homeruns.  In Lu's case, does anyone know if his returns are also due to a high batting average, or are there a few extraordinary homeruns in there?  

 

I'm a fan of the former style, not the latter.  I think a high batting average shows more consistency in the intellectual framework behind the results, rather than a bunch of sporadic grandslams.  Cheers!

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I thought his temperament got a bit out of hand when the students didn't answer his questions, he even seemed to get angry and said something like, 'Bruce what are you teaching your students' and Bruce is a very competent instructor. It may be nothing at all, but I watch for every clue about a person's personality.

 

I didn't think his temper got out of hand. He was just disappointed. The students were given a homework assignment to read up on a case (which they did not) and he asked them to do a few mental math calculations for figuring out the market cap. They were unwilling to do so and came off pretty lazy which is sad when you consider that it is a class of Columbia MBAs.

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In Lu's case, does anyone know if his returns are also due to a high batting average, or are there a few extraordinary homeruns in there?  

 

The article doesn't give specifics but says that without BYD, Lu's performance as a hedge fund manager is "unremarkable."  I'd like to know the author's definition of "unremarkable."  ;)

 

Anyway, it looks like the article is now on WSJ.Com:

 

http://online.wsj.com/article/SB10001424052748703977004575393180048272028.html?mod=WSJ_hpp_LEFTWhatsNewsCollection

 

 

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In Lu's case, does anyone know if his returns are also due to a high batting average, or are there a few extraordinary homeruns in there?  

 

The article doesn't give specifics but says that without BYD, Lu's performance as a hedge fund manager is "unremarkable."  I'd like to know the author's definition of "unremarkable."  ;)

 

I guess they mean that once BYD is stripped out, performance wasn't great?

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Lou Simpson's portfolio is somewhat transparent with the 13-HR filings Berkshire has to make, and the size of the investments Simpson makes, so you can see that Simpson has a high batting average rather than just a few homeruns.  In Lu's case, does anyone know if his returns are also due to a high batting average, or are there a few extraordinary homeruns in there?  

 

I'm a fan of the former style, not the latter.  I think a high batting average shows more consistency in the intellectual framework behind the results, rather than a bunch of sporadic grandslams.  Cheers!

 

different strokes for different folks, i guess.

 

li lu's style is more like mungers, & to a lesser but still significant extent like webs. ofcourse, web does trade, its just that his biggest gains have come from a few big bets, combined with long term compounding of those bets.

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I never liked Greenwald so I'm biased but when nobody does the work let alone knows how to figure out what the market cap is, I'd say Mr. Lu had every right to simply stop in the middle of the lecture and walk out. 

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I never liked Greenwald so I'm biased but when nobody does the work let alone knows how to figure out what the market cap is, I'd say Mr. Lu had every right to simply stop in the middle of the lecture and walk out.  

 

As someone who would like to go to Columbia one day. I was left thinking WTF. Hopefully things have improved. Li Lu came off like a dick, but thats sometimes how I come off so it didnt bother me much. He honestly wasnt asking for much. Whats the market cap? Whats the cash flow?

 

Lol on Greenwald. He seems like a great guy, but his style seems to complicate value investing to me.

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My point is it's University, whether you answer a question or not, no big deal ,move on. It ain't high school I remember my teachers saying in University nobody cares whether you do your homework or not, skip class or show up, pass or fail and it's true, at least in Canada.

This is not just "University", but one of the very best (finance) MBA institutions in the world.  Once you've done that, you can't get any farther in the business world w/o doing some academic stuff (PhD/DBA).  That, AND he comes from that place.  I know I tend to be more demanding of people coming from my own Alma Matter even though I was a total slacker back then.

 

I haven't seen the video but I can relate

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different strokes for different folks, i guess.

 

Well, it does matter to a certain extent.  If Li Lu likes to make big bets like Munger, that could pose a problem for an insurance company whose level of statuatory capital could fluctuate wildly due to a bold bet and mark-to-market accounting.  For Berkshire, not unlike Buffett's decision to invest in derivatives, that could mean the difference between an "AAA-rating" and an "AA-rating"...or worse!

 

li lu's style is more like mungers, & to a lesser but still significant extent like webs. ofcourse, web does trade, its just that his biggest gains have come from a few big bets, combined with long term compounding of those bets.

 

At the end of the day, money is money and your return is your return.  But batting average becomes important over 20, 30, 40+ years.  Especially if the investment capital you are looking after is inter-generational, as Buffett intends Berkshire to be. 

 

According to the article, Lu's fund originally had a total of $150M in investment assets.  He put $40M into BYD, which would be worth $400M today.  The fund's value today is $600M, meaning that the original non-BYD capital ($150M-$40M = $110M) is now worth ($600M-$400M = $200M).  That's a return of 81.8% over six years (mid-2004 to mid-2010), or 10.5% annualized on non-BYD assets. 

 

Again, the return is the return, but I would prefer a longer track record for someone who is going to handle billions and billions at Berkshire.  Cheers!

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One thing to consider is that Buffett very clearly attributed the BYD purchase to Munger, and he hasn't professed any particular insight into the company. If BYD truly explains most of Lu's outperformance, then circumstances have changed, or we should view the article with some skepticism.

 

 

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One thing to consider is that Buffett very clearly attributed the BYD purchase to Munger, and he hasn't professed any particular insight into the company. If BYD truly explains most of Lu's outperformance, then circumstances have changed, or we should view the article with some skepticism.

 

It could very well be all of the above.  At this year's AGM, it was really Munger who made the reference to "a manager who returned over 200% last year".  Buffett did not say anything.

 

I would be very surprised, in fact it would be completely contradictory to everything Buffett has said historically about naming a successor for the CEO or CIO position before his demise, if Buffett entertained the thought in front of the public that Lu would be one of the four CIO's.  He's always made it a point of not annointing anyone until the board ultimately has to make a decision.  We've heard praise for various CEO's and investment managers, but never a direct comment like Munger made in that article about it being a forgone conclusion.  Cheers!

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My guess is that the students were just a bit lost with the layout of a value-line chart. Take a look and you will see that it's rich of information but requires to get used to it.

 

BeerBaron

 

Exactly! Why look like a dummy if you aren't sure you understand the chart!  It appears that Li Lu may be self referential rather than aware of others -- not necessarily a disadvantage for an analyst, but for WEB II ??

 

Also. It was a very brave thing that he did at Tianamin Square, but is it wise to have a revolutionary type in a major leadership role in a stable company?

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The potential selection of Li Lu does make some sense when you considered that he is a little bit of a Munger protege, his personal life experience is almost as fascinating as Mrs B, He uncovered the BYD gem; and more importantly he has the chinese insider access

(knows the language, the mentality, the accounting,...) which of course is a wonderful investment market for the future of Berkshire. (remember that among brk's recent home runs Petrochina and Byd are both chinese companies).

 

The only thing that gives me pause is his tech bias... a field plagued by obsolescence and often heavy capital requirements. ???

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My guess is that the students were just a bit lost with the layout of a value-line chart. Take a look and you will see that it's rich of information but requires to get used to it.

 

BeerBaron

 

You have a point it is extremely busy, and I couldnt find the market cap in very quickly.

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My guess is that the students were just a bit lost with the layout of a value-line chart. Take a look and you will see that it's rich of information but requires to get used to it.

 

BeerBaron

 

You have a point it is extremely busy, and I couldnt find the market cap in very quickly.

 

If it was a Value Line chart, the market cap may have been listed in a small box on the left if the company is large, but if not for a small cap a quick calculation may be necessary.

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I read the WSJ article.  It's great with important details that other accounts didn't have.

 

I've reconsidered my reservations about Li.  He is very talented, and he should be a good fit in the BRK culture because he gets along well with Sokol, WEB's likely successor as CEO.  :)

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According to the article, Lu's fund originally had a total of $150M in investment assets.  He put $40M into BYD, which would be worth $400M today.  The fund's value today is $600M, meaning that the original non-BYD capital ($150M-$40M = $110M) is now worth ($600M-$400M = $200M).  That's a return of 81.8% over six years (mid-2004 to mid-2010), or 10.5% annualized on non-BYD assets. 

 

Again, the return is the return, but I would prefer a longer track record for someone who is going to handle billions and billions at Berkshire.  Cheers!

 

Would have to agree with this one. It is smart to piggy back on one company but the greatness of Buffett is that he built his empire on multiple bets over a period of time.

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