No. of Recommendations: 8
BABA has been an interesting investment for me. One of my brokerage accounts is showing a 65% loss as I type. I think overall I’m down around 50% but it’s too painful to look!
It’s a brilliant personal case study for me. I consider myself to be really honest with myself when it comes to investing.
Stage 1. I notice Munger buys BABA. Early 2021 I think. Click whirl…he is an investment master. Smarter than Buffett. I mad a killing on BYD after copying his move. Let’s have some more of that. And it’s another Chinese firm. Great. I do almost no research. I vaguely know it’s maybe 15 or 20x. It’s got great businesses. China is going to do well long term. Li Lu also owns it. It’s down quite a bit from all time high on concerns China is cracking down on private sector + Ma goes missing + VIE concerns + Chinese financial statement concerns. I figure Munger buying suggests the financial statements must be sound. Li Lu’s local knowledge of the business. Munger confident about China long term. Munger fish were the fish are & US companies not as strong and too expensive. Munger rarely buys anything and only if it’s a fat pitch. I buy some.
Stage 2. It goes down. Okay that can happen. Then it goes down some more. Then Munger doubles down. On hearing that, I rush to buy more of this even cheaper quality firm, I can hold forever and enjoy the big trends: rise of China, tech etc.
Stage 3. It keeps going down. I keep buying. But starting to become concerned. I think about one of laws to investing. You have to do the work personally so that you have the conviction to hold when the market disagrees with you. I tell myself, I may not have done the work on BABA but I have studied Munger in tremendous detail.
Stage 4. Munger sells half of the DJCO BABA position. Well this is interesting. If Munger exists I will have no hesitation following him even if anchor bias prevents me from taking a loss and previous commitment bias to hold forever. But wait, word is it would have have been rational for DJCO to take a tax loss. I hold.
Stage 5. CCP continues to hammer big tech. VIE concerns intensify. Global institutional investors start exiting China en mass. Share prices continues to fall. I am not buying any more of this and may avoid China altogether from now on. I hold.
Stage 6. CCP lays off a little. Munger says unlikely VIE is an issue: sage to assume contractual relations between big nations continue. Restructure plan at BABA. Share price recovers somewhat from the lows. I think maybe it will work out…eventually.
Stage 6. Spin off falls over. Cloud business not doing as well as hoped and buyers not interested. Stories about management changes. Loosing market share to competitors. Shit just got real. Munger says it was the biggest mistake of his life. It was more of a retailer than a tech firm. I can’t watch as too painful. Share price hits new lows daily. I take a glance at the financials and it looks ridiculously cheap. Reminds me of when I bough McDonald’s in 2002 at 5x FCF because negative a couple of years of negative sales comps had convinced the market it was a dying business. But went on to go from $12 to $295 today. I sold that one at $23, idiot. I hold. (Sequence of events here not correct)
Stage 7. Munger passes away. My reason for buying. I miss Charlie. He was an absolute legend. His financial record and his contribution to Buffett’s and Berkshire’s is evidence he was one of the greatest investors ever. But of course his contribution to the world was much greater than his investment record.
Stage 8. Charlie is gone now. I am along in deciding my fate with BABA. I think about that other fundamental iron rule of investing. You are neither right nor wrong just because someone else agrees with you. You are right only if your reasoning is sound. Further, even the great investor only hit 7 out of 10. Buffett may be a rare exception. I have seen him make very few errors. A couple of things that didn’t do much like IBM but he almost never has a realised loss. The pandemic caused a few problems but the timing of that was unknown.
My plan is to spend some time over Christmas looking much closer at BABA. Humans have a bias to cut and run to stop the pain. Munger gone gives me a psychological way out. However, I have improved as an investor over the decades and I hope I will be rational enough to look at the facts and take my decision accordingly. Valuation will be a compelling reason to hold, plus the quality of the business despite recent challenges. China is a hard one. I will take comfort from Munger’s comments that the Russia experience in Ukraine will put China off thinking about Taiwan for a while (which would be game over for not just BABA). I will have a strong bias to hold, as I know the current situation can easily blow over and 20 years from now it might do well. We’ll see…
(Apologies for the typos. Have to run)
