- Thank you so much. Thank you so much. I know that you guys are incredibly excited to be here, and I know it's not because of me, but rather because of our guests today who I will introduce shortly. So before we start with the interview, let me take a couple of minutes to tell you a little bit that as always at this time of the year, the Helbrand year is up and running in full swing. The students, some of whom are here, took already my modern value class. They're taking their applied value investing class, their create superhighway, all the electives. So we're having a blast. They're all absolutely wonderful. In addition, we have a new initiative this year in the Helberg Center. We launch our first global value investor program. And the first cohort of that program that is joint effort with Columbia Business School Executive Education is here. So these are all these wonderful friends from China who are visiting us this year. So thank you so much for being here. Michael and I, I get asked this question a little bit too often. We're already working on a new season of the Value Investing with Layens podcast. So episodes will be coming soon. So that is something to look forward to. We made our new stock selections for the student portfolio, the Tom Russo student portfolio. I don't know what we bought this year, Equifax, Humana. We bought, what else? We bought the great Japanese bicycle company, Shimano, a classic value play. There, there was one, COPA, the online corruption company, Perimeter Solutions, Fire Solutions. So a lot of fun things. And as I always do, you can actually download all the reports the students did over the years on the different companies. A wonderful resource, and I very much encourage you to look at that. And I'm always amazed, by the way, I want to single out a wonderful member of our community. I'm always amazed about Tom Russo's generosity with the Helberg Center, not only because of the student portfolio, because everything he does for the program, and in particular this year of making sure that our friendly Lou could be here for which we're always thankful. We just had a wonderful week, as I told you just a moment ago with this new program, the Global Value Investor Program. Andrew Gunlach and Kristen Gilbertson put on a show for them, which I also want to acknowledge publicly. And finally, we're getting ready for a terrific SEMA conference. And it's just amazing the names that are coming this year. Hello, boss. So we're going to have Howard Marks, Bill Ackman will be there, Josh Wolf of Lux Capital will be there, Samantha McLamore from Patient Capital. So I very much hope to see many of you there. Okay? Now to the main event of the year. So Lilu, of course, needs no introduction as he's truly one of the great modern value investing legends. He's of course the founder and chairman of Himalaya Capital, which he founded in 1997. He's built an enumerous record of performance in the last 30 years. Lilu, as many of you know, is one of our most distinguished alums. He graduated with a law degree, an MBA degree and a BA from Columbia College because why get just one degree when you can get three? Apparently this was how he though about this. His personal story is well known. I won't repeat it here. Lilu is of course famous as an early investor in BYD and many of the great Chinese names and will have the opportunity to discuss issues related to the Chinese stock market today with all of you. So first of all, Lilu, welcome and thank you so much for being here. - Thank you, Tano. It is - Fabulous. Yeah. So I'm going to talk for about 50 minutes and then I will open it up for questions and I'm going to ask you to keep them short and to the point and I will be ruthless. If you take more time than what I consider necessary to get your point across, I will cut you off and I'll give you a nasty look. Okay? So just keep them because I'm sure there will be many, many questions. Okay? So Lilu, I want to start a little bit. You are, as I said, one of the great names in modern value investing. You're deeply intertwined as well with the story of value investing at Columbia Business School. We were talking about that over lunch. You were there at the very beginning when Bruce was launching this program. We know of your friendship and partnership with both Charlie and Warren and how many things you guys did together. We will be celebrating 30 years of the founding of Himalaya Capital next year, which is a remarkable achievement. So I want to start here. I want you to tell us a little bit what is that you learned about value investing and where do you think we are today? What is the thing that you wish you had known at the beginning? What is that lesson that you think we have now that we didn't have when you were studying at Columbia Business School, these ideas? - Yeah. Thank you, Tono. First of all, thank you all to be here. It is such a wonderful, wonderful occasion. Like when I was a student as well as a young professional, I have also attended a few of those luncheons. It was the highlight. I hope I do some justice now that 30 years later. Now, of course, the discipline of a value investing started with a Columbia. Now almost think about when Ben Graham first started this classes is almost 90 years ago. And of course they practiced 10, 20 years before that. So we call it 100 years old really discipline and is really do have evolved, but some of the core principles really have not and become timeless. So if I have to distill the main principles for the discipline of value investing, I would say there are six in my mind. Three of them come from directly Ben Graham, the namesake of a today's lunch, one each from Warren and Charlie in my mind. And we add a small twist that you call gather six. So here is the basic six principles in my mind that guided our discipline, at least our practice over the last 33 years. Now, Ben Graham laid it out pretty quickly as he started this discipline with the three basic ideas that a stock is piece of ownership, now a piece of a paper to do trade or wrong. So buying stock really is the same as a buying company. And secondly, a market is there to really serve you, not to instruct you, which is a really profound insight if you are really in the midst of the market activities. And thirdly, that investing is about predicting the future, which is inherently unpredictable and therefore you always want to require margin of safety that help you protect the downside as well as really make a better upside. And then I think when Warren practices, I think he added this further discipline, which I call that a circle of competence, meaning you really over time, all of us probably predisposed to have a certain interest and over time you develop particular expertise and try to really study more and make it a better. And the most important concept of a circle of a competence is really knowing the edge of it because most of us really are wired to be a little bit thinking a little bit more than we actually are. And so understanding the edge is as important as understanding what is inside of the edge. And then Charlie had this idea that you got to really fish where the fishes are and he is a lifelong fisherman. And that is also a wonderful analogy in terms of actual market. There are certain market, there's certain industry, there are certain businesses just to draws a lot of attention. And with that a competition, with the competition is averaging out of your returns and really, and then there is the other industries or businesses or countries or market that just don't really attract enough of attention. You have much of fewer fishermen. You do way better to fish where the fishes are. A simple idea, but in practice is really amazingly effective. And lastly, that over my own 30 some three years of practice as a global investor, applying the principle value investing on a global basis in the time that the global commerce is becoming one single market, one insight that we have is that wealth in the end is really the percentage ownership of global purchasing power. It isn't really expressed, especially modern economy and the amount of the gold and diamond or currencies of any kind. And with inflation, all of those dissipate over time. What really is important is what you can really buy with it, what you can use that for. A better measurement of wealth is your percentage ownership of global purchasing power. And the way we express that is by buying great business in the most dynamic economies at advantageous prices and wait and long enough for the value to be created over time and share proportionately on the upside. So here it goes is really the basic six ideas that I think can withstand the test of time that will serve everyone - Well. So I like very much this last point. I'm already deviating from the script you and I agreed on because I think going forward, keeping an eye on that purchasing power is going to be key if we're not going to be able to control inflation in the presence of these fiscal challenges. So if we have time, we'll come back to this. So I want to get a question in before we run out of time for the benefit of my students in the room, okay? Because this is my prerogative as being the person asking you the question. So we'll get this out of the way. I don't want to run out of time, which is, so value investing as a practice has seen ups and downs obviously, it's been improving conceptually over time and Bruce and your leadership, many other people in this room as well. What is the future of the equity analyst in the age of AI? Do you think that we still can teach what we do at Columbia Business School going forward? - Yeah. Okay. So let me answer that into two different part. First, really what investor do, and then let's also talk about AI also in a separate investor basically look at the market participant. They're basically really only four kind of a different people. They're the investors that are really taken with the company over time for value creation. And there are also people who would arbitrage right the wrongs of a market pricing. In Ben Graham's term that as a real estate, you buy from the pessimist and sell to the optimist. And those are the arbitrage. And then you have the people who are really in it mostly for speculation, mostly guessing what other people would buy or sell to a certain security doesn't care about either the value pricing of the security or the value creation. And then there is also the broker and market makers that facilitate all of those. Now you look at all of the people that most people are not necessarily purist. They basically would encompass somewhat of all four of them. And if you have indexing, it's exactly that average in a sense. But value investors are really are into the getting the right pricing discovery and also wait for the value creation over a period of time. And I would say Ben Graham is more of the arbitrage and Warren is really using the arbitrage price, but also mostly for value creation. And then the social benefit of all different ones is also quite interesting. The speculations really are by definition, they don't stay there long enough for any of the value changes or creation. So they added up to roughly zero, whatever is the making and the losing probably added up exactly to that. So net to a society is a cost to the functioning of the market and the brokerage and the market making is also a cost to really the function of the market. And the market exists as a primarily for the goals of generally excessive savings for productive use in deserved accompany and creating this modern economy that really have compound economic growth. And so that is really where the reason why stock market exists in the first place. So the question, why do you really have this speculative side of it? Well, this is just part of the human condition. Warren always described stock market as a church with a casino attached to it. And so the church is where the values are created and the casino is almost part of building permit. So part of the necessary cost because of human condition. 400 years ago when it was created, this is really how you get really inspired the animal spirit and 400 years later it is still - Doing - That. So this is really where you're going to make a choice as a students. You want to be the zero sum game, you want to be the value creation game. And that's really a personal choice. As a society, you also have a choice. You don't really want the casino side to be so out of a proportion as to overwhelm the primary objective of why the market exists in this first place. So that's really both a choice on the individual level as well as a society. And the fact that over 400 years, despite all these huge boom and bust, giant waste, somehow this mechanism survive, continue and continue to propel society as a core function is a pretty miraculous to say the least. So for your student, that is important to make that a distinction early on. What do you want to do personally as a society? We should also calibrate the proportion of each, but they do coexist as a part of a human condition. Now onto AI and a market, that's really a more complex question. Now, first of all, what is AI or this wave of generative AI? Now, it is obviously a technology. It's a huge technological wave. And as a technology, of course, we've been dealing with that for the last few hundred years ever since the industrial revolution. We have a wave after wave of a technological waves and the disruption and the creation associated with it through that process of a creative destruction. We kind of understand some aspect of it, but somehow we feel that this wave is different. Of course, every wave is different, but this wave is unusually different than anything we have experienced so far. Now, what is make it so different at this time? Well, on the surface, you can see that the pace of a change, the scale that is involved, and also the concentrated financial impact at the top, the nature of that concentrated impact at the top, they're all incredibly unprecedented. That is on the surface. And then you ask the question why that is the case. Well, the narrative is slightly different. Most of the time until this moment, we're dealing with the technological changes as a fundamental two to human productivity. And at this technology, we introduce a different element. And now we have a spectrum of a two versus creature. And now we began to really change on the scale of that spectrum of a two versus creature. The moment it was first introduced nearly four years ago was the moment of a touring test. At that point, we can no longer tell from a language whether it is a machine or it is a human. And then from that point on, we were introduced with a reasoning and then it began to really gain more and a more human feature. And from reasoning comes coding. With a coding capability, it become autonomously executing agent that functions much as a human does. And then comes the collaboration of all the agents in complex and long lasting task called a long reasoning. And so in which much like a human society, agents would organize and self-organize, prioritize executing task in ever more sophisticated fashion with their own language communication tools. And that's where we are. And if you look at the Silicon Valley narrative that the generative AI will go to the stage of RSI, which we're partially in, the idea that all the improvement would eventually be self-made without human in the loop. And from RSI, we came to AGI to ASI, the intelligence level exceeding all human individual as well as some, both individually and together. And from there, you would really say we're creating somewhat of a semi-God or demigod, but manmade of a creation. And because of that is so powerful how compassing and therefore the economic impact by definition has to be huge and therefore justify all the different investment costs. And so that's, you're all invited when you have the trillion dollars IPOs, you're almost invited to participate in the IPO of a God or something. Yeah. That is that narrative. And that's what really make it different. But if you step back a little bit and basically saying, look, if this were indeed the case, what will become humans in that case? We're living in a society that's lord over by a manmade god that accessed by very few understood by none, not even controlled. We can't say that because nobody understood it at that point. So are there anyone humanity really like to live in a society? And elsewhere probably is a resounding no. I don't think anyone would want to live into a society. So there's only one of the two outcome in a sense. A, this technology is not progressing in that direction. And we can discuss what it is and why it is not, or B, if it indeed really progressing in that direction and that we would all at some point unite together to stop it from becoming that one. So in neither cases, we're going to have a manmade God living and Lord over with the human society. And so that's really, as I said, what really distinguish this generation of technology and that why it's different and all the different impact and particularly financial market impact it has on this technology. But leaving that aside, when you come back and say, is that really a useful technology? And of course the answer also is a resigning yes. What it is at essence, and if I were to give it a provisional definition, this what I would say from observing what it does and what it came from, it is a machine by really applying brute compute with clever algorithm and using all human generated data and it is a first derivative to come up and establish a systematic contextual correlation among near infinite variables of human generated data and is a first derivative. And in doing so, establish capabilities including much of human reasoning and human intelligence. Now at a present time, we know how to work and how to make it better, but we don't quite understand why it'll work. Not as much or to the same extent of we don't quite understand how human as a machinery really work. And with that really provisional definition and observing what is happening now, that it does really equalize a layer of the economy that is really very helpful. Now, if you look at the economy, we basically at the bottom we have energy and transportation on top of what we said, manufacturing. And on top of that, we have the communication, digital media, and then we have this enormous amount of knowledge based, technology based surfaces that is synthesize all the knowledge we have accumulated that serve all different layers of economy. Where generative AI today at its current stage is a great tool to synthesize and equalize all the knowledge and expertise that has accrued to that layer that help all different ones. But it can't really change, for example, the energy and the transportation. It doesn't change to the manufacturing, which is essentially the combination of a different item, molecules and atoms and transform into different combination. And in the communication and the digitalization, they already a great synthesizer. So that's really the realm where it is going. It has not gone beyond human. So it's basically, you can also understand, so by this extension, it may not rise to whatever is the narrative or the dictator will lead you to believe. We're still firmly within the human generated data realm. To go to the biological sense, it requires a whole different level. For example, this may be going too far. - Go for it. Knock it out. - Each cell you contains called a 50 bed of files and then you need to times the trillions in order to really get us really on the biological level. So we're not anywhere close or ever really get to that level. But what has established already began to tip this balance between the twos versus a creature. And so one of the two argument would persuade you to stop any further development without a human in the loop. RSI without a human in the loop, this RSA recursive self-improvement without a human definition would be very, very dangerous because basically they would develop what goes and sub-goals with its own purposes and that would really get it further from human control. So in summary, we come back, this technology is enormously helpful, transformative, and it is extraordinarily dangerous. And so we have to have as a society and together as a human beings have a red line to really firmly establish whatever the self, the learning or utilization of the tools that it cannot be without a human in the loop. In other words, a firmly established on the two side rather than the creature side. And of course it's also enormously disruptive from employment to emotional dependency to risk from cyber to bio to nuclear, all of that. So all of that, in the end, what you want society to develop is a balanced paced development that balance the benefit and risk. The cost, by the way, this technology will always, always have incremental cost. This is fundamentally different than the internet or a bunch of a previous technology once you have a one time investment and you can really amortize for a long time. This is not the case. So you always really have a incremental cost associated with it. So the cost and a revenue profit is also very important. The capital need and financial discipline would also, whistle will be in operation always. And also the pace of a development and the level of a society tolerance. So you got four or five different layers of a consideration for pacing and the development into it. Now how human society adapt to those kind of a changes known always by planning. So we're going to go through big boost and boom and bust the cycles or even multiple of it. So that's basically the nature of how is it going to really develop? But those lines are always the ones that we have to think about it as we approach this both transformative, dangerous, disruptive, and costly technological wave. - I mean, so I think that thing that you said, Lilu, about this Combination of being extraordinary, of course, being dangerous, and that we don't completely understand why is it generating some of the answers that it's generating would require a human in the loop to check over it. So once again, it's going to be the scarce supply of the skill of the person monitoring the artificial intelligence output that is going to be determining where the rents are going to be located. - That's right. - So effectively means that if you are smart and you can communicate effectively without AI inside any domain, you're going to be the scarce resource and probably the rents are going to accrue to you. Do I understand this correctly? - Yeah. I think that's somewhere along the line. It obviously have a different aspect and nuances, but I think in the end - - Okay. Yeah. So then let's start projecting these ideas. I mean, one of the things that is most striking when we all walk into the classroom, there are many of my colleagues here teaching capital markets or financial markets about investing, investing in general. I mean, this is one peculiar market. So let's start talking about... And I have a very vague question for you here, which is the market seems to be driven by a very low number of companies that are really pushing the technological frontier. The world seems dependent on these companies to push this technological frontier. And as a result, valuations are completely distorted by that. There's a plot that I show to my students, which is the market capitalization of the company with the highest market capitalization normalized by GDP. That number traditionally has been a number between two and 4% is now about 15% with Nvidia. So how do you think about this market, a market that is becoming overly dependent on those few companies with a very high beta to those companies? How do we design portfolios to protect ourselves against the shocks of this technology? - But market always do peculiar things. Yes. From the very beginning, we go through this and we'll probably continue to do this. You don't have to really be dictated by what the market decided to do at any given time. This is really one of the most important insight and contribution from Ben Graham himself. So at this point, if you look at the proposition of one recent perspective that I read, here is one company that called himself a research lab and yet is burned through tens of billions and promise continue to burn through hundreds of billions of dollars and a promise, a transformative technology, but at the same time have a 10% of chances really killing everyone. And he wrote it in perspectives and invited everybody to put in at least a hundred billion at two trillion valuation. Now, if there's any consistency irony, because it is, and this is a really kind of one extreme illustration of how irrational the market really gets you to. It cannot be both true, but that's really where they are. But it also tells you that things are not really rational and not sustainable. Eventually won't really continue. So that is also the rules of the market if you look at throughout the centuries. And they do really do strange things over a long period of time. Take the S&P since 2010, for example, in the last 16 years, it's average out of 14, 15%. And in the preceding 10 years from 2000 to 2010, it averaged exactly zero. In fact, it's slightly negative for 10 years. And so if you average it out the last 26 years, they basically get you a high single digit. And that's roughly about right over the long term. If you think that the GDP grows in that period of time, maybe 2%, you got a two, 3% of inflation, you average out about four or 5% nominal growth. And then public listed company do slightly better, especially those that are chosen by elimination of the 500 best of companies that do slightly better than that. So you come up, call that high single digit, and that is exactly where the long-term average has been. And so that really should serve as a basic grounding pillar of getting what deserve and how the market rationalize over a longer period of time. But then it punctuated from period of time and sometimes a long period of time, it goes to the extreme. And an example we just cited, it does strike people as minimal at odd. That happens. That happens throughout the history. And so I think if we really grounded the society in the sense that a really super creature is simply not allowed or tolerated by society, it won't really go to there. And if it really stayed in the realm of the twos, this will be like any other tools of a cost and benefit associated with it. And therefore financial discipline and capital market discipline would apply eventually. And the way you get there is through multiples up and downs and boom and bus cycles and that's also fine. From that perspective, the bifurcation as a result of it, at any given time, you don't really create an enormous amount of a new capital. So if you're overwhelmingly driven to the top, that basically means you also really bifurcated with a whole bunch of otherwise wonderful businesses are trading at a very low prices. And this is the same with here or China or any other places. And in China it's probably more extreme as some of the Chinese participant would be well aware. But over time, the weight of the market was still really dictated, the long-term returns of the investors. You still kind of get what you deserve in the end. There's not much of a free lunch, even if it appears to be for a period of time, an even long period of time, that over the longer term will be weighed out by the natural weight of the market rationalization in itself. That's why it existed for a few hundred years already. So I would say this bifurcation offers those with a rational mind, better opportunity set than the other times in a sense. If you really stay rational, which again, is very difficult. It's not that easy. You got to swept down easily. And then especially when you have a bigger technology wave, your margin of imagination get expanded dramatically. So the speculative side of the market really get a lot more active and the imagination become wilder. And so the forces, so the exaggeration would also tend to be more extreme. But those really for a rational mind create, I would say, long-term better opportunity side than less than otherwise. - So you mentioned China briefly there. - Yes. - So let's talk a little bit about that. I just came back from China. I was teaching the participants there in Hong Kong and I took advantage of that occasion to do a couple of cases on Chinese companies to study a little bit the Chinese market. I mean, it's been quite a ride, let's put it this way, over the last few years. And I wanted to ask you about this. How do you think about the Chinese market these days with the problems in the Chinese economy associated with the real estate bust and the banking crisis? It looks very reminiscent of some of the things we've seen in other places, but I wanted to get from you a little bit how you see investing in China these days. - Yeah. Okay. So you mentioned also the Chinese market and you look at the last 10 years, they also have stagnant for basically a 10 years period of time basically. And what happens in that 10 years is fascinating. 10 years ago that the Chinese government has a decision to make, now they have achieved somewhat of a middle income level. The question is that how do we break away from it? And so many countries have reached that level and then stagnant there. So much so that there is a term to describe that as middle income trap. Many, many dozens of countries achieve that one and stay there 40, 50 years later. The Chinese office is a large economy. So the question naturally is that what really keep a middle income country really stagnant in there and never really break away the ceilings? Your manufacturing, your industrialize, you go as mid to low end of manufacturing, but never really break away from it. And so they have a decision to make. So do we want to really break it out and can we do something to accelerate that process or make sure that actually happens? Because on is a natural course, a lot of a country have failed to achieve that and stagnant and stay there for 40, 50 years. In some countries even longer. And so they embarked on this process of migrating deliberately of the economy from low to mid-end in manufacturing into mid to high end in manufacturing. And they have, instead of a five-year plan now they got a 10-year plan called Made in China 2025, which they list a 10-ish major objective that really aim to transform Chinese basic manufacturing from low to mid end to mid to high end. And as soon as that was embarked, a few years later, first the Trump administration came on board and the start of the trade war, which reinforced their idea that not only on its own natural course, it may not achieve that ceiling or break through that ceiling. All the country, other countries might deliberately to constrain them underneath of that ceiling. And then of course the Trump one followed by Biden administration that also not only keep the treat tariff, but also added more of the technology restrictions. So by five years into the 10-year plan, by 2021, the Chinese government doubled down on that direction. Essentially also decided in addition to migrating the manufacturing into the mid to high end, also added technology self-sufficiency, particularly in the areas where they have a real bottleneck, whether it is the semiconductors or the big aircraft engines or operating software code, et cetera, et cetera. They have a long list that China was facing. And thus really start another five years of a doubling down acceleration in that process. Now, when you really try to achieve those impossible goals that so many countries have failed to do, that it doesn't really come without a deep and heavy cost. And in fact, that has been the model that Chinese development is the economy, that a different period of time, they always have the big objective and target and then they have big costs associated with it. And you mentioned real estate. In the last five years is basically one of the principle cost of achieving that goal is really the middle class Chinese family balance sheet, their family wealth. By 2021, that real estate price reached to the peak. A typical middle class Chinese family have 70% of their net worth tied into the home that they own. But that home carries with roughly about 50% of a leverage mortgage. And then in the next five years until now, the real estate price on average nationwide lost about 40% of the value. And so they saw their entire family fortune going down 60, 70% on average. And when that happens, what do you do? You do three things. You consume less, you'll save more, and to the extent possible, you pay down the debt. And that's exactly what typical middle Chinese family have done over the last five years. And so the domestic demand has been growing slower, slower, slower to today, roughly zero. And the saving rate has gone up up today's to call it 120% of GDP, which is probably the largest saving deposit anywhere in the world, basically 165 trillion R&B. And people also have been through two, three years of roughly somewhat of either zero price increase or slightly negative in that more or less in that range, and therefore have a little bit of confidence issue when they look at in the future. So that's one tier of the economy. But you look at in the other tier of the economy, on the objective of the Chinese government over the last 10 years, five years, you see remarkably a different picture. And now the Chinese manufacturing have finally break through the lower to mid end into firmly into the mid to high end. Every single one of objective the made in China 2025 has been hit. In the last five years, the solving of the bottleneck issue have also made a tremendous progress. Take an example of the semiconductor. It turns out that the sanctions of US led technology sanctions has been a godsend for the Chinese semiconductor industry because it has one of the most precious thing in market economy, which is demand, which is you ask any entrepreneur what's the most important thing? They say it's the order book. If you have the revenue, you would really have this whole bow rolling with more revenue comes profit, it comes R&D, it comes a better improvement, comes more revenue. And so that actually happened to the point on the mature note to the Chinese, both the equipment side as well as the fabrication side have really achieved almost complete self-sufficiency. And on the more cutting edge and advanced note, you're really getting close to be self-sufficient with a few key missing ingredients. But if you keep this way, that is a natural course will happen. And that's just one aspect of it. And of course, one of the key capabilities of the generative AI is really producing intelligence at a scale on demand. And one of the biggest application is code generating. And that solve the biggest problem of some of those basically bottleneck, primarily the missing of layer of the operating code system. So from the PCs to the surfers to the semiconductor CODA system of NVIDIA, one by one, all of those are now being replaced with help of AI. So this becomes a great equalizer. So on fuel after fuel that you have seen that over the last 10 years, you got this remarkable progress in terms of migrating the basic contours of manufacturing from low to mid-end to mid to high end. In some areas, new energies, EVs, storage, the batteries, you name it, and it goes on and on, heavy machinery, they just dominant. They're becoming global leaders. And in the ones that they have bottleneck, it is also began to migrate and closing the gap. And at the same time, it come with a very heavy cost to other industries. Real estate, for example, we now probably on the annual new sales basis, we're down about 70%. And that actual 10 trillion also is exactly how much has been spent on manufacturing upgrading and technology efficiency. So to the tone of about a 10 trillion RMB a year. And if you look at the diversion is exactly around 2021. But that has been the development model. If you look back over the last 50 years in China, how does it develop? At any given time, roughly in my mind, maybe every 10 years or so, you got a new set of objectives target and it comes with a heavy cost. And sometime in the next 10 years, the objective could really become cost. In early days of industrial takeoff, the environment, air pollution, rivers, all of them become cost. And in the proceeding next two, they become the objective. And so the new environmentally friendly technologies were developed. So the polluters were the cost. And then in the cost of urbanization, that real estate developers were the objective and building out of China into what it is and the home ownership and the firm middle class wealth. And then in the last five, 10 years, they become cost. And then so you began to suffer quite a bit. But overall, you see the progress of the country through those period of time. That's why you can really compress a development over a few hundred years into say 40 years. But at any given time as an investor, as an entrepreneur, I'm sure all of those people from China would really strongly identify. You always want to know whether you are the objective or you're the cost. Yeah. Being the cost of a state objective is no fun. I'm sure all of you really intimately know that or have friends that really be intimately involved in the process, but that's how it is really developed. And so overall, if you give the score, you would say, well, of all of those changes, you basically have now had a country now emerged with such a size and population to really finally embarked on a complete course of modernization. But because of that, this two-tiered economy and the general loss of a confidence, and you also have the financial market for 10 years, it really exactly stagnant going nowhere. And meanwhile, you have some of the greatest companies that are workly competitive trading at a very low prices. And again, you have the bifurcation as you see here. But as few irrational investors and look at the whole as a picture, you might take a different perspective. So I would say that in today's market, you'll probably find better opportunities than you would otherwise find in the different times. So that's really - - Yeah, what do you want to... So I'm going to take questions in a moment and while you get your questions ready, so raise your hand. I want to ask you one last question, okay, very quickly, which is you founded Himalaya Capital in 1997. I arrived at the University of Chicago about the same time as a young assistant professor. And the world, at least to me, I don't know how it looked to you at that time, we didn't know each other then, was a very different world or it looked to us very different than it looks to me now. It was a world that was open, transnational, where we could travel, you could do so many things. It had some, I don't know how to say it, generosity of a spirit to it that seems to be a little bit lacking today. It looks very different to me now. So I want to ask you a little bit how you see it going forward and whether you incorporate any of those ideas in the way you think about investing. - Yeah. It's a great question, Tano. The word really over the last 30 years have changed. There's no question about that one. And the word order or the big questions of how the world really govern itself, operate by itself really do change in a slow scale. It takes a decade, sometimes a hundred years for the order to really form and really transform. And the current order order really is founded through two great world wars, which bring the whole world into brink of a collapse. And then coming out of this emerging as the American-led order and then through the Cold War and the end of the Cold War become one order. And now it's transforming once again into something that yet to be seen to emerge what emerge out of it. But underneath, there is another order that has been steadily forming for the last few hundred years, which is the economic order. The economic order really forms when more and more countries and populations join in a common treat and transact business with each other. They form a common market. That common market was finally formed roughly about 30 years ago with the collapse of Soviet Union and end of a Cold War. Virtually all countries and all populations began to join in one market economy. What is interesting about this economic order is that once a common market is formed, it is a very difficult for any single country to withstraw voluntarily because out of the market comes efficiency, comes the flywheel of continuous improvement along the lines of a technology, efficiency, division of labor, trading of the resources, et cetera, et cetera. So any country who withstraw for any extended period of time would come with a great deal of a cost. And so in the end, once it is formed, it is a very difficult disintegrated. It lasts much, much longer. You look at the trade wars and the trade frictions over the preceding hundred years, no matter what really frictions and the barriers you erected, people will find a way to trade through basically a third country along the same principles of a really comparative advantage in a sense. Take an example of a US and China trade, of course that has declined. But you look at the overall US trade with say Mexico plus ACON, they say the exact offset. Basically the US and China trade is still remain the same. It's just to go through a third party country essentially. And that is roughly true in most of the other market as well. So the political order is that US really having led the globe for 80 years and shouldered most of the cost in ensuring that economic common market will function as it say fit. Began to realize that cost and the benefit it derived from it probably is a bit of out of proportion and began to voluntarily withdraw some of those responsibilities, not very successfully so far. And so left the volume. And then of course the single biggest change in the political order is the rise of China over the last 30, 40 years. And it become enormous economic entity and with a complete set of both manufacturing and the technology self-sufficiency and the single largest market that is also open, unified regulation. That is a huge change to both the political order and the economic order that we are now witnessing. And that's really the changes we are seeing. At the same time, that our mutual dependency, as I said, it was one single market is only increased, not decreased over that period of time. And I give you one example, for example, that in generative AI, for example, the one thing that everybody needed is chips, semiconductor chips. Where those chips are being made, where are they? You think about all the countries that produce all the semiconductor chips. They have a one thing in common, one thing in common. What do you think that might be? Sorry, I'm not putting you on - This. You putting me on the spot. Now I have to think about semiconductors. I was thinking that I need to open it for questions. Oh, you're not potato - Chips. - What they have all the semiconductors in common? - So One thing in common of all the places that produce semiconductor chips that are essential for this current technological wave that the whole country seems to be betting on, and that is every country and all the people who produce the semiconductor chips all use chopsticks. Think about that. Without exception. Sorry. Actually, India doesn't produce semiconductor chips. You don't use chopsticks. Yes, that's right. I mean, fabrication. Yes. And of course, all the people who leading all the semiconductor companies in this country also use Chopsticks from Jensen to Lipu, to Lisa, you name it, Hawk, all of them. So there is a great deal of... Mutual dependency, As you can see, that if you're really batting to the extent that we're currently batting as a country, as a company, as companies, into this new technology, whatever the problem is and the perils it could be, that you have to be nice to people who use optics. And it's not changing. It didn't really happen by accident. We can go into why. Look, there is a reason that the president of United States and president China find a urgency to meet four times in eight months. Okay, two into it. The other two, really the most important accomplishment of every meeting is we schedule the next meeting. - Yeah. - And this comes really the term of a strategic stability. In other words, the stability is of a strategic importance and highlighted the sense of a common one global market and the cost of withdrawing voluntarily from it and mutual dependency to keep it in a peaceful manner. And of course, everybody meanwhile competing fearlessly, all believing the time is on their side. On China to complete the semiconductor is self-sufficient and all kinds of others on the US, hoping the breakthrough of AI would really promise and other countries have different set of a calculation. But it all comes to highlight the peaceful stability of a paramount importance to everyone is of a strategic importance. And the largest the countries really do have the responsibility and also the desire to keep it that way. And all the country would have fell the weight of one single common market and the cost of withdrawing from that one. And so the word by and large will continue to progress in that regard. The order that we have get familiar with since the end of World War II is somewhat changing and transforming. And what will emerge out of it in what format is yet to be seen. But the underlying progression formation of another thing that is of more permanent impact is the forming of global one single common market is here to stay. Now, what is the implication for a investor in a sense? We come back to our basic tenant or value investing. Of the six principles, the last one that we added is as a global investor, your wealth is expressed as your percentage ownership of global purchasing power. And one way to accomplish that, certainly the way we have been practicing is by buying great businesses in dynamic countries and market at advantageous prices and hold them for the long term to create those value and preserve our percentage and also grow it over time. And that's the one way that we have practiced that. Back to Warren's analogy, to describe stock market as a church with a casino attached to it, what Berkshire have accomplished over the last 60 years is to build that church into a gigantic cathedral in which not only that it would symbolize and function, but also people can find a spiritual solace because it provide the right function, what the market exists for. What we are trying to practice, back to your question, over the last 30 years, is that we want to prove that gospel can be spread. We can build churches in other countries. We chose to build that church in Asia as well as in other regions as a global investor. Over time, some of the churches would appear in different countries. Some of them might grow into a cathedral as well. And that's come back to your other question to the students and the young professionals. What would you choose to do in this market? This is the basic setup, a church with a casino attached to it as a part of the permitting process because of a human condition. But they do have different implications to the overall society. On the one side, you have the win-win approach and net benefit to society. On the other side, you'll have zero sum and net cost and net negative impact to society. The choice is all yours and the technology, including AI, will remains as a tool, not a replacement. And if it has any tendency of replacing a human, as I said, we will all be united to oppose such a creation of a manmade God. And therefore, my view is you don't have to participate in perspectives that call that a IPO of a demigod. And that is one way to express our collective duties to good society. And that's why this program exists and I think ought to continue. So thank you very much. - Thank you. So thank you. That's perfect actually. So we have 15 minutes for a couple of questions. All the way in the back, you were the first to raise your hand so you get the right to do it. The only thing is that I'm going to ask you guys seriously to make it quick. Okay? - Yeah, just real quickly, Ed Lugo from EL2 Capital. Thank you again. I really appreciate it. I just want to get your sense of the difference between Chinese AI and American AI. Okay. It would be great. Thank you. - Good. I'll take two more questions, same - Time. Yeah. Someone else was raising their hand. Yeah. All the way in the back there, you have one and someone here too. Yeah. - We'll do three questions - At a time. Yeah, let's do a couple of three questions. - Yeah. It's from John Hopkins and you mentioned about the Chinese market. So I want to learn to listen about your opinion about whether the Chinese stock market could be the object or the cost. - That's a good question actually. Yeah. - One more. - One more. - Yeah. Hi, Dan Bakularz from Unison. I'm just curious how you underwrite political risk when the rules can change overnight considering you've been so successful investing in Chinese businesses. - Okay, good. Okay. So the Chinese approach towards AI, whether Chinese market is objective or cost, and how do you underwrite political risk? They're all connected, of course. Okay. So if you describe the Silicon Valley approach to AI, the fundamental question is what else this technology can do? That's the primary, that's why they still call them labs as a research labs. I want to see what else it can do. How far can we put the edge of it? That's why I also caught a frontier. The Chinese AI companies, I would say, are fundamentally curious about those questions as well. But in addition, and more importantly ask what can this technology do to my customers, both my consumers and enterprise customers? There lies a very different approach, and you can see from various different metrics to see how that result will be different. The Chinese stock market, is that objective or is that cost? Okay, the different times, the emphasize is different. But when you think about when your primary balance sheet of both individual families as well as a nation, when the real estate as a proportion began to really go down in one way, by the way, they don't really forever go down because it has a real value, what in the place would it constitute the wealth of the nation and the wealth of the people and the families? Now when you answer that question, you would say that at some point, whether it's today or is another time, it has to be. And so that is the only asset that grow with the economy. In fact, grow because of the economy and also really is the reason why the economy grow. So they all basically in a flywheel together. Now on the political risk, that comes to do really understanding the objective at any given time and the history and examine the record of all of it. And that doesn't really related to China and it relate to US and related to a whole bunch of different countries. Our whole world is still somewhat organized based on nation sovereign state and that's just the reality we live with. So with all the consideration we talk about and we should apply that to all of the country you operate. Okay, next set of questions. As many questions we can get. - Yeah, let's say, so over there, there's one, the gentleman there and another young man over here. So please go ahead. - Daniel Chief from New Jersey. Can you apply some value investment principle and strategy to make investment in growth company or high tech company? Tech. Thank you. - Okay. The tech question. - Second question I have is what is the issue of energy convergence and intellectual capital because the energy markets are now being very correlated to the consumption of knowledge based businesses. I'm wondering if this has implications to solving problems or creating problems, things like climate issues, environmental issues and others. And then I'd also love to hear any thoughts you have on crypto markets in the context of global financial conditions. Thank you. - You got like three questions there in one, but I will forgive you. - I'm Homing Li representing ACT Capital, Columbia alumni. So I want to ask about, so I'm already in the Churchill value investing group, been practicing for two years. So the risk of underperformance in the investment business where you try to preach value and see all the things leap away and then hold real career risks within it. How do you think about it? - That's a wonderful question. Okay. - The five, six questions somewhere in there. - Yeah, exactly. We will leave tomorrow morning. Yes. - Okay. Value investing principles and growth and technology companies, energy and really all associate implications to both current AI, climate change, and somehow I have to relate to a crypto. - You can do it Lilu. - Sure. In fact, I can do very easily. So the third one with regard to really underperformance and how do you keep yourself in the business even now that you're two years into it. Well, first of all, the value principle, put it this way, I think all investment, all intelligent investment is value investment because you always want to really get a little bit more than what you pay for. What you pay is a price, what you get is value, whatever value that you can express yourself, whether that is in the business that is stagnant or even declining but pay you a whole bunch of money back or is the money a company that rapidly growing or a bet that only have a small percentage of winning and a large percent of losing and therefore you spread. All of that come down to your understanding of where the value will be created because on the basic principle, they're basically all discounted the future cash flow to the extent you can understand estimate and accurately estimated. And so they're all coming down to the same mathematical. And so that's why I said almost all intelligent investing is value investing. The basic principle doesn't change. It can apply differently based on where I would go back to the concept that Warren articulated so well about circle of competence. Depends on where your circle of competence is. Now energy obviously is really essential. It's the essential layer of the economy. I say the energy transportation, manufacturing, communication, and then knowledge based surfaces. Those essentially are the entire economy. So of course they have application in every single layer. And of course right now our constraints of AI is from the chips to electricity to labors. And of course it applies differently. And of course it has impact on climate. And so those, any single one of the subjects that we can go in almost analyst aspect of it. But your third question with regard to crypto, I have a very simple answer to that. I don't think anything about it. I think eventually it would disappear on its own and it's okay. It's fundamentally bogus because if think about that, what really constitute a currency that is redeemable? It is reinforced because of the force associated with it. Without that sense mechanism enforcement, you cannot really have any enforceable measure of a settlement or store for wealth. Just some guys that created out of the garage doesn't really do the job. And so yes, it helped the criminals, it facilitate all kinds of different illicit transactions. I think we're just all better off to bend that, but that's okay. If somebody want to collect that in the same way people think a certain artist is really worth a certain price, it's your personal preference. But as a society, I think nothing of it. So it's very simple. Now your question is very real. You got the buying into it, but then of course that you also want to ask the corporate with you. So as I said, that is really where the human psychologists, everybody like have the best of the both word. In fact, they want everything. Okay. I want to really be doing win-win, but I also really want to report good numbers every year at least, preferably every quarter and every month and then every day, every hour. Pretty soon you'll become a speculator. So you cannot have both of the world. Either you think the market is there to instruct you or you think the market is there to serve you. You can only take one of the two. Anybody who really kind of want to mesh mush all of it, you're better off really doing index because that is exactly the average of all the market participant. The four kind of different market participant you average out of that is the index, you're better off doing that. And if you say, how do I really make a business out of it? Well, in the end you have to really have the people who also have a like-minded approach and stick with you. And the difficult things about really doing this line of work is you have to be bit of contrarian in terms of human nature. You got to have some element of a muted genome to think that you are right because logic and facts says so, not because anybody else agree or disagree with you. That requires a different kind of psychology and some people fit it. If you decide it's not, then don't even try. And you have also have people who believe in that one to be along with you and therefore you cannot really say, I want to have the biggest fun. I have this AOM. It doesn't happen that way. So you get what you deserve in the end. So if that's helpful. - Yes. On equal opportunity grounds, I'm going to take a question from this side. - Hi Lee. Thanks so much for doing this. Alex Captain with Cat Rock Capital. When you've been such a successful investor for such a long period of time, what have you learned in the last 10 years that you think are the most important lessons that make you a better investor today than you were 10 years ago? And if I can sneak in a second one, you keep your mind and body obviously very, very sharp. At 60 years old, you're taking three questions at a time and remembering all the nuances of it. Love to hear about all of your daily or weekly routines to keep your mind in your - - This is a question about - You got a - Few questions. - This is like the Martha Stewart segment of the conversation about your diet and - - Yeah. Okay, good. Anybody else or let's just kind - Of - Yeah, another quick question. - Maybe - Two more. Yeah. My question is about the structure changes about the US and Chinese capital market. - Say - That again. - Structure change, what's most... I mean, sorry. Looking high, like a decade or more, what's the most important structure changes about US and Chinese capital market? Thank you. - Most important is structural changes that we can expect in Chinese capital - Market. Structural changes about China and also US capital market. If you're very comfortable - Saying Chinese. - Why don't you say in Chinese? - And I will translate. I will translate. Say - In Chinese, yeah. Now I got it. - You got it? I'm still struggling. I chose to understand whatever I can understand with my limited ability now that I'm six years old. Thank you for reminding - Me. Yeah, exactly. - Okay. One more. Last one. - Yeah, here. All the way back. - Hi, my name is Wai with First Manhattan. When you are underwriting an investment, how do you ensure you have an adequate margin of safety and downside protection? Yeah. - Okay. So from the mundane to the more structured question. Okay. So where do you see the margin of safety and what did I learn in the last 10 years and keep it still engaged this far? And the structural changes between the US and Chinese market, which I don't know what does that mean, but I will say something Along the lines. I'll take a guess. Okay. Well, I think that one of the distinguishing characters that differs a value investor than most other investor is this enormous pension they paid on the downside protection. Investing obviously is predicting the future that is inherently unpredictable. So what you do is really investing in the things you do know. And what you know actually could be limited. Everybody started with a very limited known knowledge, and that's how I started when I was in my 20s. I don't know much. So I go with the things that really I know is there. So balance sheet, obviously, as Ben Graham preaches, really works because something's easier to understand. And then I gradually slowly progress into something that is simple to more less simple and more complex. It's a natural progression in term of the circle of competence. So about the circle of competence, one thing is to really understand the edge of it. The other thing is a consciously to gradually expanding that over time. And I always say, look, if you can compound your knowledge in a sustainable fashion, eventually you can compound your capital as well. So that's really back to your question, really what I have learned over 10 years. Every 10 years I find I learned so much of it, you almost have to, almost a different, somewhat of a different person. And in a way that you do want to have that renewed sense that over a long period of time, if you do the right thing in the right way, you'll be remarkable to find you actually compound. This is another reason I would say if you want to choose to go to a win-win situation, whether they're zero sum, that you actually will compound your ability and your knowledge and perhaps your health too, maybe not quite, but you can prolong that at least your productive spend, health spend, maybe not lifespan, but your health spend because you keep it engaging, it's interesting, you know it's helpful to society and you're not taking away from society. On the zero sum game, the trouble is a lot of human nature goes to zero sum to the short term. Whatever you learn today is useless tomorrow. You don't accumulate. And so you rely more and more into impersonal. You got a bigger computers and now you use AI and of course you'll be replaced at some point. And so what is the value of that as a human? And so of course I like the human in the loop. Of course, I advocate really learning and have engaged, improved life over time and compound your knowledge as well, the capital of the people in the trusting way. And what my mentor partner teacher, Charlie Munger always, always say, always advocate is the relationship. You could discover the highest order of a relationship in the similar web of deserved trust, a similar web of deserved trust. There lies a whole philosophy of approaching life in a productive way that is a win-win to society as well. And so I recommend anyone starting your career to lean towards that way of life. Yeah, you could really take years, could be slow, but slow surely you wouldn't really get where you deserve to go. And that is just a better way of living in a sense. Of course, some people have a little bit more luck and then the others along the way, our life and our success and failure, sometimes it was a combination of lucky or unlucky breaks in life. We got a fair share of all of it. And I, for one, never felt our record was completely argenius or anything. We got so many lucky breaks along the way. But if you choose the right partner, you choose the right approach, and you choose the right people to bet, choose the right things to do, over time, it's just remarkable how compound return worked. And the basic idea of a compounding is you don't lose what you already have. And that's a profound idea. You don't lose what you already have. That's include your knowledge. That's include your trusting relationship. That's including the wisdom and even your health. That's really amazingly powerful things to have in life. Okay. On that regard, I think structurally US and China's the same. In fact, that's the structure of humanity. That doesn't necessarily answer your question. I'm sure maybe we'll find a different time to discuss exactly what you mean by structural changes. But there are always changes in life. This is a one constant that we're always going to have to deal with, and you will always have your shares of a luck and unluck, and it was always a share of your great opportunities no matter which way you naturally lean to. But finding something you're naturally leaning to and build on it over a period of time in a compound and accumulated fashion is just a better way of living a productive life. So with that, - Thank you. Thank you so much, Lila.This has been wonderful.