Li Ka-shing has done what few others, correction, only one other person has been able to do – post better than 20% returns over 45 years. In a career of 60-plus years, he has built a conglomerate that ranges from property development to utilities, from telecommunications to retail, and from aircraft leasing to life sciences. Since the initial public offering of Cheung Kong (Holdings) Ltd. – now CK Hutchison Holdings Ltd. – in 1972, its shares have generated a return of 5,000 times or annualized compound rate of 20.3 percent over 46 years. By comparison, Warren Buffett has generated an annualized compound rate of 20.9 percent since he took over Berkshire Hathaway Inc. in 1965.
Buffett and Li have several other similarities – both figured out the power of financial leverage. While Buffett used the insurance premiums as float, Li acquired a utility and took the stable cash flows to banks to get low cost loans to fund other acquisitions. The cheap funding coupled with their own rock bottom salaries ($100K a year for Buffett and just $650 a year for Li) were hallmarks of their success.
Future Wealth’s View
What is striking in both cases is that they completely avoided in investing high flying startups or hot technology stocks. Their business was built in thoroughly understanding every acquisition, taking the long term view and not chasing hot trends.
The popular quote “Things are not always what they seem” captures the essence of investments by Li and Buffett. Many of these companies are dreary, old companies on the face of it but a peek into their respective financials shows their striking ability to generate an abundance of cash flow and earnings year after year. By contrast, we have high fliers today – the Amazons and Netflixes of the world, who despite their dominance, struggle to make a profit.
The lesson from these two sages is – Be patient, do your homework and stay away from bad boys. Pearls of wisdom our parents have been telling us ad nauseam since we were young.