Munger’s candor
The superinvestor Charlie Munger said Alibaba was one of the worst mistakes he had made during the Daily Journal Corp annual shareholders meeting.
I couldn’t imagine what I heard and I had to double check.
Here’s the exact phrase he said, “I regard Alibaba as one of the worst mistakes I ever made in thinking about Alibaba, I got charmed with the idea of their position on the Chinese ever did. didn’t stop to realise it’s still a goddamn retailer. It’s gonna be a competitive business, the internet, it’s not gonna be a cakewalk for everybody.”
The backstory was that Munger, via Daily Journal Corp, invested a big position in Alibaba in 2021, doubled the position in 2022 and then halved it.
He also took leverage on the position and had to cut some losses.
Based on the little he said, it seems like he now sees Alibaba as a retailer who is no different from a shop or a supermarket.
He added, “then the internet came in, I got overcharged by the people who were leading in the online retailing. And I didn’t realise it’s still retailing, you know, it may be online retailing. But it’s also still retailing and I just, I got a little out of focus. And that had me overestimate the future returns from Alibaba.”
So he thought that e-commerce has no advantage over the brick-and-mortar stores.
I am not sure I can fully agree with that. Alibaba is a two-sided platform where sellers set up their ‘shops’ on it. Alibaba doesn’t really sell the items as a retailer.
The concept is very different from a physical store.
Moreover, Alibaba has other business segments such as Cloud (15% of revenue and growing faster), logistics (6%) and media (4%). Not forgetting investments in other ventures and startups.
But I agree with Munger that the competition is crazy with JD.com, Pinduoduo, Vipshop, and now Douyin also wants in. Competition kills profits and Alibaba is not going to have an easy time as before.
I am not smarter than Munger and I respect him greatly. That doesn’t mean I have to follow him blindly. It is important that each of us has the ability and courage to think independently.
It could also be the case where you bought Alibaba for different reasons and for different timeframes. Munger is thinking in terms of decades but maybe you just want to sell on a rebound, given that the share price has been heavily hammered. To each his own.
All that being said, Munger is still bullish about China, just not as bullish as Alibaba. He repeated his favorite point once more during the meeting – you get to buy better businesses at cheaper prices in China.
Will Munger sell the remaining stake in Alibaba? Only time will tell. But I am sure he has a lot more undisclosed China investments under his personal wealth or via Himalayan Capital.
There are two lessons to learn from this. The first has already been mentioned – think independently.
The second lesson is that everyone makes mistakes. Even a superinvestor too. But Munger could recognize a mistake and willing to admit it publicly. That is not easy.
We definitely would have more mistakes than him that we need to admit and correct them.
