Is Charlie Munger out of his mind? Will he be wrong about Alibaba this time?

As of 12 Apr 22, it was announced that Munger has halved his stake in Alibaba.

Do famous investors make mistakes? They most certainly do – all the time! One case which made current headlines was how Michael Burry covered his short position in Tesla.

Most recently, Charlie Munger doubled down on his position in Alibaba. Is he completely out of his mind or does he know something we don’t?

Who is Charlie Munger and what is he famous for?

Charlie Munger and Warren Buffet have been working together for almost 50 years now and although Munger’s net worth is less than 2% of Buffet’s, they have grown old (and rich) together.

In my research, what I found most interesting about Munger is how knowledgeable he is in multiple industries. I can’t quite put that into words, but perhaps this quote can provide some clarity.

Charlie is known for his fluent, multidisciplinary mind. Trained as a meteorologist during World War II and as a lawyer at Harvard before devoting himself to business, Munger has drawn heavily from the study of psychology, economics, physics, biology, and history, among other disciplines, in developing his system of “multiple mental models” to cut through difficult problems in complex social systems.

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That could be why we find Munger’s quotes from decades ago still relevant today, despite all the technological advances in financial modelling.

Munger’s recent ‘crazy’ purchase:+ 136,740 BABA Shares

One thing that’s interesting about Munger’s portfolio is that it only contains 5 stocks. If we look at the percentage of each stock in his portfolio, I might even say his portfolio only has 3 key positions. This makes his portfolio extremely easy to “copy” if you’re an investor who trusts his instincts more than your own.

With such a concentrated portfolio, the addition of any new position can feel significant.

It is difficult to get an exact price because Munger is only required to report his filings every quarter. But after doing some research, I’ve managed to discover Charlie Munger’s Alibaba estimated buy prices:

Date	Company	Approx. Share Price (Estimated)	Number of Shares	Estimated Value at Purchase
Week of April 5th 2021	BABA	$225	165,320	Aprox. $37 Million
Week of October 4th 2021	BABA	$150	136,740	Aprox. $20.5 Million

I must say that his second entry into BABA has indeed been timely as he would surely be enjoying at least a good 10% gain on that entry.

At the time of this writing, the charts do indicate a strong bullish reversal after breaking out from the $170 near-term resistance.

Smart Money Following Suit

Aside from Munger, we are seeing several other institutional investors buying up Alibaba:

This chart from Dataroma tracks various prominent fund managers and their trades. Based on this chart, we can definitely see more fund managers adding BABA to their portfolios rather than trimming it.

There are far too many reasons this could be the case. But I think that at this point, BABA is indeed too cheap for investors to ignore, especially since it’s trading at a mere PE of 21.

Most would feel that the stock has indeed been beaten down too much considering all the news coming out about China (Jack Ma + Evergrande + regulations etc).

What am I doing?

Do I think I am smarter than Charlie Munger? Absolutely not!

If you think you are, please drop me a PM as I would like to know why.

As such, I’ve taken a copycat approach and the chart below shows the 3 trades I have made in BABA upon hearing the news. While I’m not endorsing Munger’s trades or giving any financial advice here, I think it is highly unlikely that Munger could be wrong given his excellent track record. Hence, BABA will likely end up as a stock that I will hold in my portfolio for a long, long time.

P.S. Alvin shares how he picks stocks like BABA and many more for a balanced portfolio that grows over time. Join him to learn more.