Date
23 October 2017
Li Lu (extreme right) is a firm believer of value investing, of which the most famous proponent is billionaire Warren Buffett (second from left). Photo: WSJ
Li Lu (extreme right) is a firm believer of value investing, of which the most famous proponent is billionaire Warren Buffett (second from left). Photo: WSJ

Warren Buffett successor loading up on H shares?

Although Warren Buffett’s impressive track record has been much applauded by investors worldwide, applying his value investing approach to the China market over the past two decades has proved to be a disaster.

Catching the latest speculation theme seems to be a far superior tactic.

No wonder Li Lu, one of the possible successors to the billionaire investor, used “Does value investing work in China market?” as the title of his recent speech at Guanghua School of Management of Peking University.

Li admitted that this question has been bugging him for years.  That’s because most stock market players in China are speculators. Lots of shares trade at market prices that deviate substantially from their value, even over an extended period.

Following an extensive study, Li concluded that the mainland’s capital market and financial reforms carried out in recent years will change the situation eventually.

And so his answer to the question is “yes”.

Precisely because not too many people practice value investing in China at present, with most of the players still chasing after short-term movements, true value investors will find less rivals competing with them. So now is the right moment.

While Li says value investors could enjoy a big advantage, there is a condition–one has to be very patient.

“If you can persistently adopt the value investing discipline for 15 years, it’s almost definite you will become a great investor,” Li told the audience.

Li is walking his talk. His Himalaya Capital, which counts Berkshire Hathaway as a client, recently filed a record with the Hong Kong bourse, revealing that its holdings in locomotive giant CRRC Corp. already exceeded 5 percent of outstanding shares.

Li could keep adding H shares to the portfolio as the Hong Kong market is still far more open and accessible compared with the mainland’s A shares.

It would be interesting to keep a close watch on his next move.

This article appeared in the Hong Kong Economic Journal on Dec. 7.

Translation by Raymond Tsoi

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CG

Hong Kong Economic Journal columnist

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