Li Lu is a Berkshire Hathaway legend. He may be unknown to retail investors but he’s adored in its halls.
Lu, who was born in China but shaped by 1989’s student protests and heard Warren Buffett speak at Columbia University, found his path after hearing the lecture.
Himalaya Capital now manages over $3.5 billion, with a strategy that is based on the philosophy “buy and keep” of Charlie Munger, his mentor.
Lu’s portfolio will be anchored to just three giants by the year 2025: Alphabet Bank of America and PDD Holdings.
Alphabet Inc.: The AI fortress, the search dominating
Alphabet Stock remains the crowning jewel in Lu’s Portfolio, with a 44% share split into Class A and Class C shares.
Google has shown remarkable resilience. Critics once worried that the generative AI could undermine its search dominance.
Recent victories over Department of Justice’s antitrust initiatives have removed significant regulatory cloud, allowing tech giants to integrate AI.
Alphabet is rapidly diversifying its ecosystem beyond search. YouTube continues to be a major force in the digital media sector, and Waymo dominates the emerging autonomous ride-hailing industry.
Google shares are trading at around 26 times earnings in the future, a combination of growth that is similar to “Magnificent Seven”, but with a price tag value investors such as Lu find acceptable.
Bank of America – a leader in economic volatility
Lu is primarily betting on Bank of America, which represents 16% of Himalaya’s capital. This bet is a testament to the strength of the US Financial System.
The banking industry has found an advantage in recent geopolitical turmoil in the Middle East, which is driving up energy prices. A steepening yield-curve and shifting regulations have given the sector a boost.
Investors have a positive outlook on a “deregulation rally”, as Federal Reserve officials indicate a possible easing of capital requirements that were imposed after the 2008 financial crisis.
Lower capital requirements translate into greater shareholder returns for a giant like Bank of America through higher dividends and share buybacks.
The massive infrastructure of the company allows it to absorb costs in a way that its smaller competitors simply cannot. This is a “scale play” classic.
PDD Holdings – a contrarian wager on Chinese E-Commerce
PDD Holdings is the most controversial company in Lu’s “Big Three”, as it owns Pinduoduo, a global disruptor and Temu.
This position, which accounts for 15% of Lu’s portfolio, demonstrates his willingness to do things differently.
PDD is a good alternative to Chinese stocks that have suffered a five-year decline due to low consumer confidence, fierce margin competition and a lack of investor confidence.
PDD’s shares trade at just 8 times earnings forward – as opposed to the 23x of US tech benchmarks. They are therefore a highly-conviction bet on a Chinese economic recovery.
Temu’s model of supply chain is so efficient and global that it offsets the risks of regulatory complexity in the region.
Should you also buy these stocks? This post may change as new information unfolds
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