It’s no secret that I copied Charlie Munger’s trade on Alibaba throughout 2022. I bought in when the trades were declared in the Daily Journal’s 13F statements. Needless to say, my position is in the red at present.
Although I blindly copied his trades at the onset, I must say that over time, I’ve come to understand the company better (due to vested interest) and at this point, my stand is to continue holding the stock. I’m quite sure that I’m not alone in this situation and truth be told, with the latest happenings, I daresay that there really couldn’t be a more realistic “test” of the resolve of Alibaba investors.
Though I try to make sense of this situation, it is most unfortunate that there is still much speculation involved at this point as “Munger’s assistant said he declined to comment on Daily Journal’s Alibaba stake.”
Quick disclaimer as some of the opinions which I’m sharing are my thoughts in general about the situation and may not be supported with actual facts.
First up, what happened?
If you haven’t heard, it was announced that Munger’s Daily Journal sold half their stake in Alibaba.
The Los Angeles-based company owned 300,000 American depositary shares in Alibaba at the end of March, according to a regulatory filing Monday. That’s down from 602,060 at the end of last year. Daily Journal’s current Alibaba holdings are valued at roughly $31 million as of 2:35 p.m. in New York.
Munger-Tied Daily Journal Slashes Its Alibaba Stake in Half
Did Munger Sell?
Answer : No one knows.
Simply put, Charlie Munger’s name will be strongly associated with the Daily Journal but at present, there is no hard evidence that Charlie Munger initiated the sale. The reason is because as of March 28th, Charlie Munger stepped down from the company (as chairman) and currently holds the role of Director.
As such, it is unknown to us if the leadership change influenced the company’s decision to sell or if there are indeed other factors at play. Until Munger steps up to clarify, judgment shouldn’t be passed and it is apparent that the market is with me on this as based on the price action of Alibaba (9988) on 12 April 22, the price hardly moved.
Does Munger still own any BABA?
Answer : No one knows
The only reason we know that Munger “has” BABA is that by law, the Daily Journal is required to report their holdings under FORM 13F every quarter (Link to most recent 13F here). Therefore, though his portfolio has more often than not been closely related to that of the Daily Journal, there is no evidence at present to indicate that he has any BABA in his own personal capacity or if Daily Journal or himself holders any Alibaba on the Hong Kong stock exchange.
It is important for us to understand that there is a possibility here that they could be holding shares of Alibaba on HKSE in which case none of us would really know as no regulatory filings are required by law.
All in all, lets not jump to conclusions as of now what the motivation to sell was. Without more insight from Munger himself, there would be no end to the speculation. Instead, here are 3 reasons why I think Alibaba is worth holding throughout this turmoil.
3 Reasons why I am holding
1. Local Chinese Government Crackdown [Pause]
About this time last month, most Chinese stocks doubled in value and this was largely due to how the Chinese government came forward to state that they are “done” policing tech. Now we all know that such things are never always set in stone (hence the word, Pause) but what we do have at present is some assurance that the Chinese government will stop issuing fines and at the very least, stop introducing new regulations.
We are seeing the situation slowly improving as just yesterday, China approved new online games.
Beijing gives go-ahead for first time in nine months in boost to hard-hit providers like Tencent and Bilibili
Financial Times
2. Delisting Concerns
On a personal note (really my personal opinion), I believe that narrative behind delisting concerns are overinflated by the media. Think of it this way, the media doesn’t care about your stocks. All they want is readership and there is no better way to spark concerns of delisting.
Though the delisting concerns do have merit, we must bear in mind the facts in play here and the facts are that China is indeed playing ball with the US on this.
China Securities Regulatory Commission and other national regulators are in the process of drafting a framework that will allow most Chinese companies to keep their listings, according to people familiar with the matter. Details are still under discussion and may change, the people said.
Yahoo! Finance
If we really want to get real here, should Chinese stocks ever be delisted by the SEC, your stocks would be the last of your worries.
3. Geopolitical Woes – Found their “support level”
The events in Ukraine proved many things but one of which I feel isn’t mentioned enough is how China is not singing the same tune as Russia. Things could be a lot worst but what we are seeing now is that China is somewhat remaining neutral throughout the crisis.
Instead, the Chinese government has tried to toe a careful line. It has not condemned Russia’s invasion. But though China has criticized Western sanctions on Russia, it has not really moved to help Russia evade them, and it looks like it’s trying to avoid running afoul of the penalties.
Vox.com
While this doesn’t indicate that geopolitical tensions are increasing, at the very least I believe that they have found their “support levels” in the sense that China is not insane enough to encourage further war and well … side with the Russians.
What now?
The news of the sale was first published about 5 hours before the HKSE market opened on 12 April. Market participants had more than enough time to react to this news but given how the stock barely moved thereafter, I conclude that the market is still indeed waiting for more news on this. It’s not to say that Munger himself can influence the entire trajectory of the stock but at the very least, its safe to say that the market is undecided on where this stock should go for now.
