Li Lu discusses four reasons for selling stocks:

1. Bought the wrong one, initial judgment was incorrect.
2. Better investment opportunities have emerged.
3. The market shows bubble-like valuations, with prices far exceeding reasonable ranges.
4. In order to address the fund redemption and other capital needs

Question 1: During the process of holding shares in high-quality companies, to what extent would you consider reducing your holdings if the market presents a clearly inflated price?
Question 2: Few people can hold onto high-quality companies for the long term and achieve sustained returns. Is this related to luck and courage? How should young people make investment decisions in situations with insufficient information and high uncertainty? When should they overturn their original beliefs? Did you also experience these dilemmas when you were young?

In terms of selling, I mainly look at three conditions. First, if I find that I have made a wrong judgment, I will sell immediately. Second, if there are currently more worthwhile investment targets with a better risk-reward ratio and upside/downside ratio, I will change my position. Third, when the market shows signs of bubble-like extreme overvaluation, I will consider selling. However, valuation itself is a concept about timing and expectations, and largely depends on the company's long-term growth potential. A common human flaw is to overly amplify short-term factors while ignoring or underestimating long-term factors. Therefore, you must continuously expand your circle of competence. The deeper the research, the better your understanding of the company.

Short-term valuations are relatively high, and compared to long-term growth, they are not that important. The real challenge lies in finding and understanding those companies that can grow over the long term. Such companies possess sustainable competitive advantages, broad growth potential, and excellent capital return rates. These companies are very rare, and we refer to them as the "Holy Grail." The best investments often come from these companies that have both long-term competitiveness and growth potential.

Once you truly discover and understand such a company, I generally do not recommend selling it easily. Because if you think it is overvalued in the short term and sell it, when you want to buy it back, you will usually find that it still seems overvalued, and you can only continue to wait for a lower price. However, during your waiting period, its actual growth may far exceed your original valuation prediction. If it truly belongs to that kind of exceptional company, this situation is even more likely to occur. If it does not, then that's another issue.

In a lifetime of investing, finding such companies is very difficult because they are extremely rare. A good company that you have thoroughly researched and is also priced cheaply is a very rare opportunity. In my thirty years of investing, such opportunities have only occurred a few times.

It is equally important to be able to hold such a company for the long term. No matter how much you already know, continuous research is essential.

Taking Berkshire as an example, we view it as a "fortress-type company" managed by the world's best investors for over sixty years. However, its stock price has also fallen by over fifty percent three to four times. Whether you can continue to hold firmly during such times depends on your deep understanding of the company's intrinsic business.

The formation of this understanding is not easy. Berkshire has numerous excellent assets and subsidiaries, and to truly understand it requires long-term research and knowledge accumulation.

Another example is our holding of BYD for 22 years. During this period, its stock price has dropped more than 50% at least six times, with one instance even exceeding 80%. Each significant drop tests the boundaries of your circle of competence. Do you really understand it? Do you truly know how much it is worth and how much value it has created? There was a year when BYD may have significantly increased its intrinsic value, but its stock price dropped by 70%. Only in such cases is the existence of your circle of competence truly put to the test. During our holding period, BYD's revenue grew from 1 billion to nearly 1 trillion, and it has not yet hit a ceiling; it continues to grow and create value. This is what makes investing interesting.

Therefore, the length of time you hold shares and the timing of selling largely depends on whether your circle of competence is solid and whether you truly understand a company. Investing is not something you can relax about after buying. If it were that simple, everyone would be wealthy. Investing is not easy, but it is an interesting and challenging job.

The fourth situation that requires selling comes from fiduciary responsibility. When we manage other people's funds, there are times when we are forced to sell. If we are fully invested and encounter a redemption request, and our fundamental principle is not to incur debt, then in order to raise funds we must sell part of our holdings. We insist on not borrowing money because only in this way can we withstand a 50% drawdown in the entire portfolio. Significant declines are the norm in investing. If you have not experienced a few such crashes in your life, it is difficult to assess whether your circle of competence truly exists, whether you genuinely understand the company, or if it is merely courage, impulse, or luck.

The real test of the stock market is human nature. If you do not understand your investment target, you will eventually be defeated by the market. Therefore, to gain true understanding, you must constantly deepen and expand your circle of competence and commit to lifelong learning. I mentioned at the end of my speech that Munger bought a stock at the age of 99, after having studied that industry for at least sixty or seventy years. The important thing is that your knowledge will indeed grow exponentially.

When you are young, you can start in the most basic way, such as buying the cheapest stocks. Because only when the price is low enough can you hold on for the long term without pressure, calmly understanding the company and its business. Only under this premise can you ultimately find those truly outstanding companies. The premise of long-term holding must be a deep understanding, not just holding for the sake of being "long-term."

The core of value investing is understanding value. You pay a certain price to buy value, preferably when the price is below the value. Gradually expand your circle of competence; there is no need to rush.