Li Lu

"Never forget the two cardinal principles. The first is to understand and live up to your fiduciary duty. Treat your client’s money as your own, or as your parents hard-earned life savings. Only then can you manage it well. Second, consider it your moral duty to acquire knowledge and seek wisdom. Make conscious effort to distinguish half-truths from the truth."

Li Lu

Article: The Prospect of Value Investing in China, Oct 2015

- On the wide-open path of investing, you find very little traffic and wonder where everybody is. You need only look at the ‘heterodox’ path of shortcuts with traffic backed up for miles. Investors take shortcuts because the right and main path takes too long.

NB: Dry for a while (works), then gets sticky and you get stuck. Truck comes from the other direction and mows you all down (market collapse).

- You won’t casually state that 5,000 points is too low, that a bull market is imminent, or that 4,000 points is a bottoming out. You will know that such pronouncements are outside your circle of competence. No matter how big the circle you draw, these statements won’t fit into it, and those who set the boundaries of the circle beyond their competence are destined to be destroyed by the market at some point or somehow. As I stated previously, the market is a mechanism that discovers your weakness. Any fault/defect will be magnified infinitely, to the point of complete destruction. Therefore, one basic requirement for professionals in this industry, is to be completely and one hundred percent intellectually honest. It is very easy to deceive oneself and particularly in this industry, but one should never do it.

- The performance of short-term investments is often influenced by the market and based on luck rather than competence. For example, you can always find stock market geniuses who succeed over a very short period of 1 to 2 years, or even 1 to 2 weeks. During a continuous run of 15 years in which the market provides on average compounded return of 14% you don’t have to be a genius at all. All you need do is get in the game and ride the market to see excellent results.

- The table can also be turned to where the market shows negative returns for 10 consecutive years. If you can succeed under these market conditions, you are a true genius. This is what I meant when I said that without looking at the specific content of your investments it is generally difficult to judge your competence.

- The biggest market will eventually become the only market. The Iron Law of Modernisation. It states, that when there are two competing market systems, with the interaction of two forces of 1 + 1 > 2 and 1 + 1 > 4; the one with the greater trade volume will see greater growth. When one system has greater volume, it will have greater velocity in its growth, and eventually create a single system.

- Never forget the two cardinal principles. The first is to understand and live up to your fiduciary duty. Treat your client’s money as your own, or as your parents hard-earned life savings. Only then can you manage it well. Second, consider it your moral duty to acquire knowledge and seek wisdom. Make conscious effort to distinguish half-truths from the truth.

Here ends the sermon.

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