Listening to some older Li Lu’s podcasts and speeches I hear one of the quotes that seem so simple and straight forward that gets taken for granted and overlooked..
This one came from Charlie Munger who said: “**Investing is like fishing, you have to fish where the fish are. The two rules of fishing are: Rule number one, fish where the fish are. Rule number two, never forget rule number one**.”
In my head, I was like “yeah, makes sense” but I just continued listening without really realizing that was exactly what I was looking for.
There is no point for me to be looking at overvalued US companies when I can just look elsewhere and find significantly cheaper companies, and if I do a good research they shouldn’t be lower in quality..
I know there is skepticism about other markets within the finance industry, but if we realize every investment carries risk, its just game of numbers..
If we have two exact same companies, and company A is at 30 P/E but it is in US, and company B is in China at 10 P/E, which one has more margin of safety, and which one carries higher risk?
Imagine if you had GOOG in China at P/E of 10, everybody would take the risk and put huge sum of money there..
$TSM is the living proof that risk is acceptable as long as the quality is top notch..
***(did this math part below with AI, as we need to use the tools we have to help us, but the creative part and ideas should come from us)***
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The Math Breakdown
* **Company A (US):**
* P/E Ratio: 30
* Earnings Yield percentage: **3.33%** per year.
* Meaning: You pay $30 for every $1 of annual earnings.
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* **Company B (China):**
* P/E Ratio: 10
* Earnings Yield percentage: **10.0%** per year.
* Meaning: You pay $10 for every $1 of annual earnings.
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* **The Math Difference:**
* Company B gives you triple the earnings return per dollar invested compared to Company A.
* On paper, Company B has a larger "buffer" or discount.
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Where Is the Higher Risk?
* **Company A Risks (US at 30 P/E):**
* High valuation risk.
* Price drops if growth slows down.
* Less room for error in future sales.
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* **Company B Risks (China at 10 P/E):**
* Political and regulatory intervention by the state.
* Weak legal protections for minority or foreign shareholders (such as VIE structures).
* Capital controls and currency devaluation.
* Geopolitical tensions leading to trade blocks or delistings.
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Margin of Safety vs. Real Risk
* **Nominal Safety:** Company B wins. It is cheaper, so small drops in business value are already priced in.
* **Real Risk:** Company B loses. The 10 P/E is a "discount" for severe systemic risks. If a government bans a sector or blocks foreign money, a 10 P/E can drop to zero instantly. True margin of safety requires both a low price and a predictable, protected environment.