Reading 'Value Investing and China' - Part 1

Recently, my friend and former colleague Forrest recommended the book by Li Lu.

Who is Li Lu? He’s the founder of Himalaya Capital, the primary manager of Charlie Munger’s family assets, and has been called ’the Buffett of China’ by Charlie Munger himself. He translated and published the Chinese version of Poor Charlie’s Almanack.

First, I’ll make a bold prediction: this book will probably be banned soon. Diving deep into economics, the system, and politics is unavoidable. Personally, I think Mr. Li discusses these topics objectively and sincerely. But in our vast country, ’truth’ often has no place. As the book gets read and spread more, it’s very likely to be banned. So, if you’re interested in value investing, grab a copy quickly.

Before reading, I learned a bit about Mr. Li’s background. In the ’90s, he was driven out of his motherland. In 2010, with Buffett’s visit to China, despite being abandoned by his homeland, his writing still shows deep affection for China. Alongside this affection, there seems to be some resentment in his words.

Mr. Li is well-read, knowledgeable in both Eastern and Western histories, having spent decades in the investment world. In Value Investing and China, he presents a clear framework of human civilization’s development from ancient times to the present, linking it to ’economics'.

Compared to Mr. Li, I’ve read far too little and too scattered (while the author was at Columbia University in the ’90s, he read over a hundred classical works that laid the foundation for thousands of years of Eastern and Western civilization). I’m really impressed by his ability to integrate and outline knowledge from archaeology, history, economics, politics, and religion along the timeline of human civilization. The dry historical events, and political/economic knowledge I memorized in school, come alive and are well-reasoned in his writing. History, politics, and economics should be learned as part of a main narrative.

When discussing human civilization, Mr. Li’s perspective and threads of research are unique: humanity’s acquisition and use of ’energy’. Human social activities and the development of civilization require energy acquisition and utilization. On this basis, Mr. Li divides the history of civilization into three stages: 1.0 Hunting and Gathering Civilization, 2.0 Agricultural Civilization, 3.0 Technological Civilization.

During the 2.0 Agricultural Civilization era, the East (China) surpassed the West due to its geographical location. The vast plain between the Yangtze and Yellow River basins provided favorable conditions for agricultural development and was enhanced by the institutional innovations during Qin Xiaogong’s time brought by Shang Yang’s reforms, leading to the most remarkable talent selection mechanism of the agricultural era, the imperial examination system.

However, precisely because of the disadvantageous geographic and climatic conditions, Western European countries like the UK, Portugal, and Spain discovered the Americas through maritime technology, initiating free trade between Europe and the Americas. It’s worth mentioning that early trade wasn’t a political act but purely commercial behavior in a state of anarchy. It resembles the early internet, with minimal government or national intervention, purely driven by technology and commerce.

Free trade, the Enlightenment, religious reforms, the scientific revolution, the industrial revolution, colonial wars, and a series of changes ushered humanity into the 3.0 Technological Civilization era.

When discussing whether ‘modernization could have occurred in China,’ Mr. Li’s view is that it couldn’t. Because, under the royal governance in China at the time, conditions for forming a free market economy weren’t present. This hasn’t changed much even today.

The above is a bit of my notes and shallow understanding of the first part of Value Investing and China. Simply put, I’ve gained two insights.

First, benefitting from Mr. Li’s writing allows me to seemingly stand at the height of human development and look across millennia to view human civilization and economic development. My perspective has broadened, my vision has cleared, and my investment attitude has become slightly calmer.

Second, it sparked my interest and desire to read more books on history, economics, and politics.

I recommend giving it a read.