Li Lu points out investment misconceptions: opportunities are not scarce; understanding is the real scarcity

Dubbed the “Warren Buffett of China” by Munger and one of the closest Chinese investors to Buffett and Munger, Li Lu rarely makes public statements, but almost every one of his comments is studied repeatedly. Not because of techniques, but because his way of thinking is sufficiently fundamental, long-term, and honest.

In an interview at Columbia Business School, Li Lu discussed a question: How do investment ideas come about?

Investment ideas are not “found,” but “撞出来” (bumped into)

Li Lu’s answer is straightforward. He says that investment ideas come from all aspects of life, with the most important sources being reading and conversations. He doesn’t care about the path through which an idea appears; he only cares whether it is a good idea.

Extensive reading, researching great companies of interest, and talking with smart people—especially those who have truly achieved results in their fields. During this continuous input, there are moments when a sudden “light bulb” flashes. Afterward, he enters a deeper research phase, either becoming increasingly convinced or quickly dismissing the idea.

Here is a very important point: Good ideas are not deliberately “screened out,” but naturally emerge under long-term, high-quality input.

Truly valuable conversation partners are “businesspeople”

When asked whether he prefers chatting with fellow investors or with clients, suppliers, and management, Li Lu’s answer is very direct: Everyone chats, but he prefers talking with those who are truly doing business.

The reason is simple. Businesspeople discuss cash flow, competition, costs, efficiency, and survival, not models and stories. He also emphasizes systematically reading mainstream financial media and annual reports of leading companies because these materials hide many clues about real industry changes.

This is very important for ordinary investors. You may not have access to top entrepreneurs, but you can read annual reports, financial statements, and industry news. This information alone is enough to build a high-quality cognitive framework.

The most important skill in investing: saying “No” quickly

When asked whether there are industries he absolutely avoids, Li Lu’s response is very restrained. He doesn’t rush to define his own boundaries but emphasizes a more important point: Can you quickly judge whether an idea is worth spending time on?

He mentions that Munger ultimately only gives three judgments on any investment idea: Yes, No, or Too Difficult.

Some ideas are obviously right or wrong at a glance; if a problem is so complex that you can’t truly understand it, then just walk away. Not because it’s necessarily bad, but because you cannot gain a long-term advantage in a field you don’t understand.

Investing isn’t about how many projects you look at, but about how clearly you see which things are not worth wasting time on.

The real threshold is “whether you understand more than others”

Li Lu repeatedly emphasizes a fundamental standard: Only when you are sure that you understand more than most people on a particular issue can you tell yourself “Yes, this is good.”

What underpins this is not intelligence, but extreme curiosity and honesty. You must genuinely want to understand something; if you can’t figure it out, you must honestly admit it and give up. No pretending to understand, and no fooling yourself.

Final words

Li Lu’s investment approach does not rely on techniques, timing, or predictions, but on a system that is extremely simple yet difficult to replicate:

Long-term input, cross-disciplinary communication, quick rejection, deep understanding, and absolute honesty with oneself.

This is also why true value investing seems slow, but once you act, it is often extremely firm. Because before that, all the “not understanding” possibilities have already been eliminated by himself.