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Ohio Capital Ideas about LiLu 2016.6.9

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Summary

  • Li Lu manages $3.7 billion for Himalaya Capital and has a close friendship with Charlie Munger.
  • For those without a background that would lead to competence in understanding Asia, analyzing Lu’s trades can provide a head start in navigating the Chinese and other Asian markets.
  • Although Li Lu is most known for his BYD investment, he has also invested in CRRC, Ilsung Pharmaceuticals and Korean Preferreds.
  • Understanding the rationale for these investments and following it is a wise long-term strategy as periods of wide differences in price and value are likely.

[Editor’s note, June 10, 2016: Author has corrected shareholding attribution to Mr. Lu since original publication.]

Had Li Lu never decided to become an investor, he would still have had an eventful life. His parents were sent to labor camps during the Cultural Revolution in China, a movement designed to re-assert the influence of Mao. Lu was shuttled between families until he was 10. At the age of 23, he became a student leader in the protests of the Chinese government in Tiananmen Square. The protests were instigated by the resignation and death of Hu Yaobang, a liberal reformer whose outspokenness and willingness to attack corruption had made enemies. What began as a remembrance became a protest. After the government sent the military to disperse the protesters, Li Lu was the eighteenth most wanted activist by the Chinese government. An operation that involved both the US and UK intelligence agencies allowed Lu, along with many others, to escape China through Hong Kong after the protests. Lu wrote a memoir of this time titled Moving the Mountain and a 1994 documentary was produced with the same title.

After making it to the United States, Li Lu enrolled in Columbia University where he earned three degrees by 1996, including joint MBA and Law degrees. According to the foreword to the Chinese edition of Poor Charlie’s Almanack that Lu wrote, Charlie Munger and Li Lu met through a mutual friend (the Wall Street Journal reported that the mutual friend was the wife of Ronald Olson). After a long conversation over Thanksgiving in 2003, Munger convinced Lu to reorganize his investment fund into one that closely mirrored the early partnerships that Buffett and Munger ran. This would have involved insisting on long-term commitments from investors and rather than charging fees on assets, charging only for performance above a threshold. Munger

As of April 2nd, Himalaya Capital owns almost 268 million H shares of CRRC Corporation, the China Railway Rolling Stock Corporation. That is equal to about 6% of CRRC’s H shares or nearly 1% of the total company. At today’s price of HKD 7.26 the investment is worth about US$250 million. That is a significant amount as it would be equal to 7% of Himalaya’s capital. Close to 57% of the company is owned by the government. Rolling stock refers to vehicles used on a railroad. 截至2016年4月2日,喜马拉雅资本持有中国中车股份有限公司近2.68亿股H股。这相当于中国中车H股的6%左右,或占公司总数的近1%。以今天的7.26港元价格计算,该投资价值约为2.5亿美元。这是一个相当大的数额,因为它相当于喜马拉雅资本的7%, 接近政府所持有股份的57%。机车车辆是指在铁路上使用的车辆。

Using Li Lu As An Introduction To Asian Equities (OTCMKTS:BYDDF) | Seeking Alpha

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