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“There’s only one Warren Buffett…” You can almost hear it echoing around a stadium full of fund managers waving Berkshire Hathaway annual reports. Or is that just me? Probably.
According to financial media, though, there are loads of them. There’s the Warren Buffett of Britain (Terry Smith), the Warren Buffett of India (the late Rakesh Jhunjhunwala), and China’s Warren Buffett (Li Lu). The list goes on.
If there’s one value investor who truly earns the comparison, it’s probably the last of these, Li Lu. Not just due to his amazing investing record, but because of his direct association with Warren Buffett’s long-time business partner, the late Charlie Munger.
He was an early backer of Li’s hedge fund, Himalaya Capital Management. In fact, in a 2019 interview, Munger said: “I’m 95 years old. I’ve given Munger money to some outsider to run once in 95 years. That’s Li Lu.”
High trust indeed!
Incredible track record
Over the past 20 years, China has proved to be a very lucrative hunting ground for Li. He invested aggressively in two big ideas he had. One was a battery and electric vehicle start-up called BYD, which is now the world’s largest EV firm by revenue.
Thanks to Li, BYD also turned out to be a fabulous investment for Berkshire.
The other was Kweichow Moutai, which is the company behind the premium Chinese liquor baijiu (a fiery white spirit with a sweet aftertaste). Today, it’s the world’s largest spirits company by market cap (around $250bn).
On reflection, Kweichow Moutai appears to be a classic Buffett-esque buy. It has a unique brand, large moat, loyal customers, and pricing strong power. A gross margin of 90%+ – and net profit margin above 50% – indicates the firm is also quite profitable!
Li supposedly started picking up shares for around five times earnings two decades ago. In a Financial Times article, Munger said: “He just backed up the truck, bought all he could, and made a killing.”
New idea
Himalaya Capital runs an incredibly concentrated portfolio, usually holding fewer than 10 stocks. But in Q2, Li loaded up on shares of PDD Holdings (NASDAQ:PDD). This is the e-commerce firm behind Pinduoduo in China and Temu everywhere else.
What’s noticeable is that he immediately made this the fund’s third-largest holding, with a near-18% weighting, worth just under $500m. Only Alphabet and Bank of America were larger positions in Q2.
Why might he be so bullish? Well, PDD has hundreds of millions of customers in China, where it operates the most extensive online marketplace for agricultural products. Agriculture, which is still a massive industry in China, is one of the last to go online.
Our purpose…[is] not about facilitating Shanghainese people to live like Parisians, but enabling people in provinces like Anhui to have kitchen towels and good food to eat.
PDD founder Colin Huang Zheng.
The main risk with PDD is slowing growth due to tariffs and tax changes in the West. If President Trump slaps even higher tariffs on Chinese imports, then that will further hurt Temu’s growth.
However, it’s worth noting that Li is known for conducting extremely deep research to understand the DNA of a business. With PDD stock trading at less than 12 times forward earnings, it could be one for investors to also research further.
