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uh about 15 years ago at the time actually I wasn't even a student at business school I was accidentally brought into a lecture I think basically part of this class and the speaker has a funny name that really reminds me some kind of buffet lunches anyway in the middle of the speech listening to Warren that light bulb kind of just went off and uh I figured that I can do something in this uh business and of course at the time I was a pretty desperate you know recently escaped from China I didn't know anybody have a very little uh you know connection whatsoever and didn't have any money in fact I was deep in debt and I was horribly worried about how do I ever make a living in this country and I really didn't grow up with a capitalist culture either so and so in the middle of his speech I thought well what he that uh about investing really just so different from my perception of a stock market and uh and the more I think thought about it the more I thought well gee this might be something that I can do now I suppose that most of you who chose this class I understand it's very difficult to get into this class at least it was when I was a student um it's maybe kind of a self- selected group of people who are already somehow biased or uh towards value investing.
How many of you really consider yourself a value investor or or more predisposing to value investing? How many of you sort of know for sure you're going to be kind of asset management business? So roughly the same number of people who really want to be in asset management business sort of a already consider yourself as a value investor.
So who can really tell me what are the one or two things that really sort of defines a value investor from everybody else? Anybody? Yes, Chase. Uh one of the things that I that I think about is that the usually their performance depends on the uh underlying performance of the business rather than multiple expansion trading going out of the stock based on sentiment.
So for that reason they have to have a longer term horizon. So in other words, you think that uh you sort of feel yourself as more of a owner of a business in a sense and therefore your fortune rise up and down with the nature of the business and how it things to add please. Yeah, you sort of you you demand a margin of safety in a sense.
Anybody else? more longterm. Right. Right. Right. Well, that's pretty summarized that uh there basically three attitude straight out of the teachings of Ben Graham that a you think yourself as basically not a uh uh a paper shuffler in the sense you you you really think yourself as as owner of the business and B you sort of you know you you you demand a huge margin of safety when approaching investment and see that uh uh somehow you sort of think everybody else is different.
So this this is where the Mr. Market analogy come in. Uh those three things actually kind of a they all you know come into really coming from one perception which is you know is you you think yourself as a owner of business rather than kind of a kind of owner of a piece of a paper and and and and you own a small piece and therefore you really don't control the business and therefore sort of is almost self-defense to demand a large margin of safety because whatever value you perceive it may not be there because he can't control it.
Uh and then because you thought you're really owning a business and therefore you really don't care, you know, if you're owner business, you don't trade that all the time. And so therefore, you think that you're somewhat different from just about everybody else in the market participant. But then the question is if you really feel you're owner business, why you want to be the stock market?
The stock market is not created for this type of a people. Is that right? The stock market is a created is a freshized so that everybody can go in and go out. Is that right? Anybody have a view on that one? Who can tell me that asset you think is really um kind of managed by value investors? Anybody have any guess with that kind of a perception we just talked about?
There's no real study but there are number of attempts of a study uh including one actually by a professor next door at the law school low uh lowenstein. Yeah. And and which really kind of put it roughly under 5% of all asset that actually is consistent from what we just talked about it. Now you are really not the majority.
You are actually a very very minority and the stock market is really not created for you. is created for the 95% of all the other people and that's really where your opportunity is and that's where your challenge is. So to understand that before going into manage management business is really extraordinarily important and that's really when I that's what I first learned when I when I came here and listen to uh Buffett.
Uh that's one thing that stick in my mind and that really sort of helped me to position where I am because I really know by then what kind of a person I am. I think most of your challenge especially those of you who really want to end up in the manage management business and I'm actually tonight primarily addressed to that group of people.
Sorry for those people uh that that are not. Um you are your biggest challenge is really to understand whether you're that 5% of the per people or you're the 95% of the majority and you might think that because of the training because you do this you sort of you know intellectually or theoretically biased towards that small minority group of people you'll be amazed you know how much it would have changed you know my career is sort of take a little twist as well I always kind of run my own fund you know part of the time when Bruce sort of mentioned was u Julian was really sort of uh when he invited me to really share off it with him because he sort of invite a whole bunch of fund managers that he invested in and also share sto uh share ideas and that's when I sort of get a much better understanding of how the 95% of other people really operated and and you know it is tempting because you know why 95% of the people don't do you know what you guys are here try to do despite the spectacular success of Warren Buffett and Charlie Monger why is that anybody have a a reason why is that why there's only yes
emotionally it's very difficult yeah emotionally is very difficult but if you think that you know it's very convincing that value investors over a long period of time really have much much better uh kind of returns. You know, you think that's where the money is. You know, even if it's emotionally difficult, you think they wouldn't change it.
Any other reason? Right. Right. To that point. Right. Right. We actually very close to the point. I think that the real answer is that's really where the money is. Why that's where the money is? Because the market is really created for those group those kind of a people who are really thinking of trading in and out all the time and therefore that they will pay attention to the short term and therefore that if you put up with that requirement that's really where the asset is going to find you.
And so as a result that statistic despite the huge diff discrepancy of a performance of that 5% have a spectacular return consistently over a long period of time 95% of the money or something close to that probably would always reside to somewhere else and is if that's where the money is you know most of people naturally would end up there.
So my first kind of a point I want to leave with you is really to understand who you are because you will be tested through all this period of time to your future career development that you're going to really have to really face to to to ask yourself whether you're value investor or you're not value investor.
Now if for whatever reason that your personality is built to be a value investor that probably means that you're somehow you know genetically mutated throughout the the process of evolution that a you're very comfortable being in a minority which is not really very uh natural to human beings. You know throughout our human evolution process the most of us survived because we stick with the group in phase of large mammals.
That's the only way we can we can survive and so it is really over you know tens of thousands of years of evolution really you know deeply ingrained into your genes. uh but occasionally you will find a small percentage of people really survive despite the fact that they really have a different kind of a gene is almost through a mutation process that that group of people survived.
So that's the first thing you have to really be very very comfortable uh you know being very much by yourself and therefore you would naturally adopt the attitude or right not because other people agree with you but because your reason your evidence are right. It is common sense but of course as people said common sense is the least a common commodity.
Most people don't think that way. And secondly that you would probably spend most of your time truly being an academic researcher instead of so-called a professional investor. Most of the time you're going to spend as a professional investor, as a value investor, not a professional investor, is really to be an academic, to be a researcher, to be a journalist actually.
Uh to basically be have insatiable curiosity, to really and try to figure out how just about everything works because investing really the more you know, the better off you are as an investor. And so you you just have to be naturally interested and occur just about everything any kind of a businesses politics, science, technology, uh humanity, history, poetry, literature, everything really affected your business basically.
So you almost have to wait a you you know that I don't want to scare people. You don't have to put it that way. It will help you. It will help you. And then occasionally you want to find a few insight that all of those studies that really gave you tremendous opportunities that other people just for whatever reason couldn't deal with either psychologically somebody said or because of the limitation of the thinking or because of the institutional imperative of the institution they belong to all sorts of different reasons.
And then you go through find out is the business that opportunity you're given is that cheap is the business a good business is the management is somebody that I can trust either because they're good or because the external checks are sufficient um and what else is missing that why this opportunity presented to me so you go through all those checklist and you feel comfortable and then you just have to really go over the last psychological barrier to basically do it.
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