How Li Lu Decides to Exit a Stock | Investment | Stocks

Evolving Stock Exit Philosophy

• 💡 Li Lu's initial philosophy was to sell a stock if he wouldn't buy it at the current price.
• 🔄 This approach evolved when encountering truly exceptional businesses that he viewed as a "real owner."

Reasons to Hold Exceptional Businesses

• 🚫 Selling a great business means you may not be able to buy it back, losing a unique opportunity.
• 💰 Selling triggers significant capital gains tax, which can be 40-50% of the gains in some cases.
• 📈 Not selling allows for an interest-free, indefinite loan from the government (tax deferral), effectively leveraging your position.
• 🚀 These businesses often deploy capital at very high returns, sometimes 50-100% annually, making the mathematics of holding very compelling.

Long-Term Projection and Rarity

• 🧠 The ability to hold requires confidence in projecting a business's performance 10-20 years out.
• 🎯 Such opportunities are extremely rare, with only a handful (5-10) appearing over a 50-year investment career.
• ✅ For these high-conviction, long-term opportunities, the strategy is to avoid selling due to the compounding and tax advantages.