Every October, Columbia Business School gathers the faithful of value investing at the Metropolitan Club for the annual Graham & Dodd Luncheon, and invites someone to remind them why they believe what they believe. This year’s speaker, at the 36th luncheon on October 5, was Li Lu, the founder and chairman of Himalaya Capital and the holder of three Columbia degrees, all earned in 1996: a bachelor’s from Columbia College, an M.B.A. from the business school and a J.D. from the law school.
He gave the audience its catechism, and then he gave it something to worry about.
A transcript of the conversation, moderated by Professor Tano Santos of the school’s Heilbrunn Center for Graham & Dodd Investing, was published by the school. The next evening, Li gave the inaugural keynote of the F.K. Tang Speaker Series, launched by Columbia’s Asian American Initiative with the business school, with remarks from university president Jennifer Mnookin and business school dean Costis Maglaras. There he spoke about his own immigration and the role of Asian Americans in American innovation. Two nights, two rooms, two very different subjects, one unmistakable voice.
The catechism
Li has been, for most of his career, the most prominent heir to the Buffett-Munger school among investors of his generation. Charlie Munger, whom he called “my mentor, partner, and teacher,” was an investor in Himalaya, and Li is famous, as Santos reminded the room, as an early investor in the Chinese automaker BYD, a company in which Berkshire Hathaway later took a stake.
At the luncheon, he walked through what he described as Himalaya’s six principles, adding that the newest one concerns the global investor. “One insight we have is that wealth, in the end, is really the percentage ownership of global purchasing power,” he said.
He returned to Warren Buffett’s description of the stock market as “a church with a casino attached to it.” “The church is where the values are created, and the casino is almost part of the building permit, a necessary cost because of the human condition,” Li said. “Four hundred years ago, when it was created, this was how you inspired the animal spirit, and 400 years later it is still doing that.”
The choice, he told the room, is personal before it is professional. “Do you want to be in the zero-sum game, or the value creation game?”
The worry
The part of the conversation that circulated afterward was about artificial intelligence, and it was more skeptical than the room might have expected from an investor whose firm has profited handsomely from technology.
Li laid out what he called the Silicon Valley narrative: that generative AI will reach recursive self-improvement, then artificial general intelligence, then superintelligence, and that the value created will be so vast that any investment cost is justified. “When you have trillion-dollar IPOs, you’re all invited to participate in the IPO of a god or something,” he said.
His conclusion was blunt: “In summary, this technology is enormously helpful, transformative, and extraordinarily dangerous.” Recursive self-improvement “without a human in the loop,” he said, “would be very dangerous.”
He then described, without naming the company, a prospectus he had read for an AI developer that “calls itself a research lab, yet it burns through tens of billions and promises to continue burning through hundreds of billions of dollars.” The document, he said, promised a transformative technology while acknowledging a 10 percent chance that it could kill everyone, and invited investors “to put in at least $100 billion at a $2 trillion valuation.” He called it “one extreme illustration of how irrational the market gets.” “It cannot both be true,” he said, “but that’s where they are.”
Santos supplied the macro version of the worry: historically, he noted, the largest company in the American market had been worth roughly 2 to 4 percent of gross domestic product, and today, with Nvidia, the figure is closer to 15 percent.
The man
Li’s biography is well known in investing circles and worth restating for the rest of the city. He was one of the student leaders of the 1989 Tiananmen Square protests, came to the United States afterward and enrolled at Columbia, where he completed his three degrees simultaneously. He founded Himalaya in 1997, which means the firm will mark its 30th anniversary next year, as he noted at the luncheon.
He is not a public figure in the way of New York’s hedge-fund celebrities. He rarely gives interviews, does not appear on financial television and lets his annual appearances at Columbia stand in for a public profile. That reticence is part of his authority with students. At the luncheon, Santos announced this year’s selections for the Tom Russo student portfolio, which is run through the Heilbrunn Center: Equifax, Humana, the Japanese bicycle-parts maker Shimano, Copart and Perimeter Solutions. He credited Russo with making sure that Li could be there.
Why it matters at Columbia
For Columbia, which has spent a difficult few years in the news for reasons that have nothing to do with value investing, Li’s two appearances were a reminder of one of the institution’s least controversial strengths. Benjamin Graham taught at Columbia; Buffett studied under him there; the business school’s value investing program remains a magnet for some of the most disciplined investors in the world. The luncheon is a tradition precisely because it is unfashionable.
Li’s message, delivered in the club Pierpont Morgan built, was that the discipline matters most when the market is least rational. One may agree or disagree with his reading of AI valuations; a good many of his peers in Silicon Valley would argue that the spending is justified by revenue growth already visible. But on the question of whether investors should know the difference between the church and the casino, the room was unanimous.
Featured image: David Geffen Hall, Columbia Business School, on the Manhattanville campus. Photo by ajay_suresh via Wikimedia Commons, CC BY 2.0.
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