Li Lu is one of the best value investors in the world. He once was considered to be a portfolio manager for Berkshire Hathaway's investment portfolios. He recently sat down with students at Peking University to talk about business and investing.

On selling a stock: 

"Usually I sell a stock on one of three occasions. First, I sell a security if I make a mistake. The second occasion when to sell is when you find something that's better. By better I mean a better risk and return combination. You do that by constantly improving your portfolio's opportunity cost. And the third occasion when to sell is when the valuation swings way too much to the extreme high, or when the market price deviates too much from the intrinsic value. When this happens your opportunity cost becomes cash. Essentially it's all about opportunity cost. But it's not that easy because everyone's opportunity cost is different and everyone's understanding of opportunity cost is different."

On value investing in today's market:

I've been in the market for 26 or 27 years. What I've observed is that authentic value investors have always been the minority. But today, at least in China, I see more and more investors call themselves value investors. But they may not understand the essence of value investing. As Ben Graham said, in the short term the stock market is a voting machine and in the long term it's a weighing machine. If you are a true value investor, you shouldn't care about the voting results because ultimately intrinsic value is determined by the long term profitability and growth. It has nothing to do with how market participants vote. 

What to focus on when analyzing a business:
So if you are interested in a business, you'll find out that you should focus on the long term competitive advantages of this business. What would the business look like in 10 years or longer? Can it sustain its competitive advantages in 10 years? Can it sustainably grow? Will it continuously earn a high return on capital?

The full interview is here ​https://www.gurufocus.com/news/1232294
​https://www.gurufocus.com/news/1234114

Danoff talks about his investment strategy, analytical process and the investing culture at Fidelity. Here is one important message: "So, here’s the lesson to your listeners, Barry. The stock pops on day one or day two and it was always very expensive for what it was. It was like 35 — 30 times the year estimate. But the company continued to grow and grow and it stayed expensive for like 15 years but it was a great stock."

"So, that’s helped me a lot and so, I’ve tried to stay in companies and not be faked out and sort of — again, what is sort of market noise, worried about some tweets or some concern about inflation or the dollar moving this way or that way, which is sort of irrelevant in most cases to the strength and long-term profitability of a company.

I would say and I’d urge your listeners and I’d urge you to think about this idea of when in doubt, check the fundamentals. When in doubt, listen to the latest quarterly webcast. When in doubt, look at the latest presentation to investors."

I remember meeting the great Herb Kelleher and I think one of my questions, one — again, Fidelity is a great place to manage money. For whatever reason, Herb came in and everybody was at a tech conference or everybody was at a healthcare conference. I think there were two other investors and me in the meeting and I was like, Herb, the great Warren Buffett says he got — he lost a lot of money in U.S. Air. How can you make money in the airline industry? And he said, Warren bet at the wrong airline.

​— a lot of times when I’m talking to management, they’re like, why don’t you guys own more stock and I’ve got to say, I made a mistake.
But one of the great lessons over 30 years, Barry, and this is important for all your listeners, if a stock has doubled or even tripled, you have not missed it. And I don’t like to give …

RITHOLTZ: Really?

DANOFF: … all my secrets but if a stock has doubled or tripled, you have not missed it. You have to say — have the mental wideout that Peter Lynch always talks about for the past and say, what is going to happen in the future because let’s step back, Bill Gates, Michael Dell, they didn’t sell after the first double. They didn’t sell after the first triple.


The full interview is here https://ritholtz.com/2020/09/transcript-will-danoff/