Li Ka-Shing – A successful investor

17Mar12

You come across many rich people (Really rich!) who in a way apply value investing precepts to their businesses. Usually in private transactions it is difficult to find inefficiencies caused by an irrational seller since one would be buying from the owner himself and usually owners would have a very good understanding of their business to sell it cheap. They would also not be treating their shares as just pieces of paper. Inefficiencies in private transactions can probably arise either when buying or selling:

Buying:

– When the owner is a forced seller because the owner desperately needs cash

– When the owner is a forced seller and desperately wants to exit the asset for whatever reasons (lawsuit, potential liabilities, unable to run it, labour problems etc.)

Selling:

– A boom is going on in the specific sector that someone pays crazy valuations to your business (E.g. Telecom deals by Telenor, Etilsalat etc, Ranbaxy Sale, Piramal sale of Abbott)

In the first category, returns are made while buying while in the second category, returns are made while selling. Structurally it is better to develop capabilities on the former and make use of situations which throw up to enable the latter.

Some of the people who come to my mind who have made money on the former from the industry (i.e. they imbibe value investing principles while operating their business) are L.N. Mittal, Vedanta’s Anil Agarwal, Piramal’s Ajay Piramal (Can readers think of few more examples?).

Li Ka-Shing falls under that category. A wonderful read about him.

With profits from plastics, Li began buying up apartment buildings and factories throughout the city during the 1960s, a period of intense social unrest marked with Maoist-tinged riots and bombings, and reaped huge returns when the market recovered. In 1979 he became the first Chinese to buy a controlling stake in one of the old British trading houses, then struggling Hutchison Whampoa. In 1987, the year he appeared on our first-ever global billionaires ranking, Li and affiliates paid $500 million for about half of Canada’s moneylosing Husky Oil; it has been through restructurings and mergers, but he still personally has a stake worth over $8 billion.

(Emphasis:Mine)

He bought when, as Sir Templeton would say, “there was blood was on the streets”

His tips for success are a good read too.

I liked these:

*I do not get overly optimistic when the market is good, nor overly pessimistic when the market is down.

*A good reputation for yourself and your company is an invaluable asset not reflected in the balance sheets.

*Though a universal formula for success is difficult to come by, caution signs for failure are posted everywhere. Establishing a structure that serves to minimize failure will prove to be a shortcut to success.

It is very similar to some of Warren Buffet’s principles.

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