The Wisdom of Asia’s Warren Buffett

20-Mar-2012

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An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. Oxstones.com also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.

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By Robert Hsu, Editor, China Strategy,

Even though it’s only 2007, the Chinese have already celebrated what they’re calling the “Wedding of the Century.” A few weeks ago, Martin Lee married Cathy Tsui in lavish ceremonies held in multiple locations around the world. That’s right…multiple locations. Elton John even sang at one of their receptions.

I’m sure you’re thinking, “Who exactly are these people? How can they afford something like that? And what do they have to do with me as an investor?”

That’s the subject of today’s Dispatch.

Asia’s Warren Buffett, Lee Shau-kee, with his son and new daughter-in-law at what’s being called the Wedding of the Century.

Let’s start with the first question. The groom is the second son of multibillionaire real estate tycoon Lee Shau-kee, who is widely considered to be the Warren Buffett of Asia. He has come a long way from when he arrived in Hong Kong 58 years ago with only $100 in his pocket. Since then, Lee has built a personal fortune in excess of $11 billion, and is the second wealthiest man in Hong Kong after famed entrepreneur Li Ka-shing. That answers the second question.

In addition to his son’s high-profile wedding to the beautiful model-actress, Lee has another great reason to be happy: The 78-year-old chairman of Henderson Land Development has doubled his money investing in Asian stock markets over the past two years. That’s right. He’s gone from $5 billion to $11 billion in just two years!

So this brings us back to the third question: How does this affect us as investors? Lee recently shared his investment strategies and advice in an interview with Hong Kong pop culture magazine Next. I read the article with great interest, and I thought you’d be interested in knowing some of his keys to success. If you’ve been reading the Dispatch for a while, I think you’ll find they sound pretty familiar.

The Wisdom of Asia’s Warren Buffett

Rule #1: Choose the right country. This is one of Lee’s cardinal rules, and his top pick is—you guessed it—China! No argument here. Like me, Lee believes that China’s economic emergence is a great wealth-building opportunity for investors. As the nation modernizes and continues to grow at a blistering pace, the profit opportunities will grow, too.

One of the few areas in which I disagree somewhat with Lee is his outlook regarding Japan, which he likes as a turnaround play. I’m skeptical. Japan’s population is aging very rapidly, and as people age, their income and spending power often decline. I’m not saying Japan is a bad investment. (In fact, I’m recommending a Japanese company in our sister service, Asia Edge.) I just think the opportunities as a whole are much more exciting in China.

Chinese demographics are much younger—72% of the population is under 45 years old. The exploding middle class in China consist primarily of these younger people. And as you know, I believe these Chuppies will be the driving force behind global consumer spending in the coming decade.

The spending power of the Chuppies is fueling most of the stocks I currently recommend in China Strategy, like Apple, which had a big day Tuesday as the long-awaited iPhone was released. Apple uses China’s low-cost manufacturing for its hugely successful iPod, and the stock was up a fantastic 51% for us during the second half of 2006. (It’s already up 13% so far in 2007!)

Then there’s our online travel leader, our wireless provider, our online gaming stock, our casino operator in the red-hot Macau market—all were up more than the 45% for us in 2006. Best of all, this will play out over the coming years, and I expect many more other exciting opportunities to come our way in the future. (To get in on the current profits right away,

Rule #2: Choose the right industries. Again, no argument from me. Just as we do in China Strategy, Lee only invests in companies that are industry leaders. In particular, he is bullish on highly regulated industries dominated by well-run state-owned enterprises (SOEs).

Notice his criteria for investing in SOEs. They are very similar to mine. You may have heard me say before that the vast majority of SOEs are lousy investments because they’re too bloated and inefficient to make money. But, there are a select few that are well-run, profitable, and enjoy virtual monopolies in growing industries.

The best examples are the ones we own in China Strategy. Our two oil stocks cover the discovery and refining bases of China’s massive oil industry. We’re also taking advantage of China’s infrastructure build-out with our aluminum company, and our wireless operator commands more than 70% market share in that booming sector. These cream-of-the-crop SOEs averaged 48% gains for us in 2006. (You can get immediate access to all of my current recommendations when you join  

Rule #3: Invest for the long haul. Lee is staggeringly wealthy, but he didn’t get that way by overtrading. If you invest in top-performing companies in the right economy, it makes sense let these investments play out over time to maximize their potential.

We’re fortunate that many of our stocks also enjoy big, fast gains, which we gladly take! And though less frequent, there are also days where our stocks dip more than we’d like. That’s a part of investing. Through it all, though, we maintain our focus of building wealth over time in what I believe is the best investing opportunity of our lifetimes.

Rule #4: Keep your emotions in check. This was the last (and one of the most important) points that Lee made in the article: It’s important to stay calm when investing. He said manyinvestors get too emotional about their stocks’ short-term fluctuations. To balance the stress of investing and life in general, Lee meditates for more than an hour each day and maintains a relaxed, cheerful attitude towards life.

I think this point is often overlooked in today’s hectic, fast-paced world. When I made my living on Wall Street, I worked with many high-strung bankers, traders and money managers. The ones who were obsessed with their short-term performance often burned out and retired prematurely. To some extent, I fell into that trap myself and retired at the young age of 30 (although a couple of family tragedies also factored into my thinking). Lee’s unhurried, steady pace keeps him balanced, and has enabled him to continue working full-time—even though he’s almost 80!

As I finished reading the article, I realized how similar Lee’s philosophy is to ours in China Strategy. The performance of our stocks makes me more than confident that our approach is the right one, but it’s also nice to know that we’re in good company with one of Asia’s most successful and wealthiest investors.

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