As of 12 Apr 22, it was announced that Munger has halved his stake in Alibaba.
Munger almost doubled Daily Corp’s investment in Alibaba based on the latest disclosure. Alibaba is now 28% of Daily Corp’s portfolio value.
That’s one big bet on probably the most targeted company in China right now.
Opinions were split if this was a right move among the investors.
Why does Munger believe in China to such a degree?
There could be a few reasons.
First, Chinese culture aligns with his view of life.
He gave an interview with Hong Zhou Kan in 2018 and he shared that Warren Buffett and him, act with Confucian values. Come to think of it, it is true. They act modestly even though they are rich. Buffett stays in the same house for decades and doesn’t drive Bentley or sail a yacht. Munger hasn’t been seen with luxurious toys too.
Munger often sounds like a very principled grandpa, criticising the bad behaviour of others.
- On cryptocurrency, he said, “I think I should say modestly that the whole damn development is disgusting and contrary to the interests of civilization”.
- On the US stock markets, he said, “I consider this era even crazier than the dotcom era.”
- Referring to Elon Musk, “I don’t want my personal life to be [around] a bunch of guys who are living in a state of delusion, who happen occasionally to win big. I want the prudent person.”
On the other hand, he applauded many of the actions that the Chinese government has taken.
On banning cryptocurrency in China, “I admire the Chinese, I think they made the correct decision, which was to simply ban them.” He also said stopping and silencing Jack Ma was the right move. This shows his preference of a paternalistic approach in stemming bad behaviours – the principled grandpa.
So you can say that he believes in acting good to get good results. And his definition of good is based on values close to Confucianism.
Second, he believes that the Chinese government will not kill its own enterprises.
He said China “lifted 800 million people out of poverty fast. And there was never anything like it in the history of the world… So my hat is off to the Chinese. And I think they will continue to allow people to make money. They’ve learned it works.“
Combining both points together, Munger believes that the regulatory moves are necessary to rein in excess. At the same time, it would not be stifling long term sustainable growth. It’s like caning the kid when he misbehaves and not about destroying the kid’s future.
Thirdly, he believes China offers the best long term returns.
He has been saying this on different occasions, “the best companies in China are selling cheaper than the best companies in the United States.”
He even said “the strongest companies in the world are not in America, I think Chinese companies are stronger than ours and are growing faster.”
“The first rule of fishing is fish where the fish are.” He believe China is currently where the fish are.
Will he be right? Only time will tell.
