Charlie Munger Just Went ALL-IN On One Stock

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Let’s dig deeper into Charlie Mungers big stock move in 2021. By the way the figures shown in the balance sheet and income statement are in Chinese yuan.

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Charlie Munger, prior to this, had not made any stock moves in over 7 years. 2020 he did nothing. 2019 nothing. 2018 nothing. In-fact to find his previous trade, you’d have to go all the way back to 2014 where he sold most of his posco shares, with the daily journal corp. But that has all changed in 2021, after years of doing absolutely no trading, no investing, he’s decided to come out and buy… drumroll please… Alibaba stock.

If we look at the Daily Journal corporation, the company in which Munger manages their investments, he made a big move, he bought 165,000 shares of BABA on the new York stock exchange, worth 19% of his entire portfolio. This now makes up to be his 3rd largest investment in total.

But Why Alibaba Now?

But that brings us on to the question, why all of sudden now? Why after not making an investment in so many years, has Munger ploughed all of this money into BABA.

The first thing that we have to point out is that the price has taken a real fall from grace. It’s down almost 50% from it’s all-time highs from $317 to the price that we see right now. Most people look at this and they think, oh my gosh better stay as far away from Alibaba stock as possible. Charlie Munger a contrarian investor thinks the opposite and he sees an opportunity…

And it’s not just Alibaba that’s getting a beating, Chinese stocks as a whole have taken a big hit. Investors are worried about the Chinese government and the power that they have over the private sector. They’re worried about increased regulations, the vie structure, potential de-listings. There’s a lot of factors that they’re concerned about.

And this is why we see Baidu, China’s google, down 54%.
Tencent China’s largest stock in terms of market cap, that’s down 38%.
JD stock, another big company down 28%. You look at most Chinese stocks, and they’ve been hit hard recently. Because investors are becoming more weary of China and their political system.

But if we take a look at Munger’s opinion on China, he thinks differently to most investors… He got asked recently at the latest Berkshire shareholder meeting on what his current thoughts were on China and if the communist leaders would allow businesses to flourish in years to come. Here’s what he said.

Audio 1

Charlie Munger he doesn’t like to discriminate whether the business is black or white. Whether it’s American or Chinese. He likes both countries. But to him, the most important thing is whether the business is catching mice. Whether the business is making money. And if we look at Alibaba, Alibaba is a cashflow machine. Let’s look at some of the numbers.

Free cash flow that’s seem some impressive growth over the past few years. It’s gone from $95.3 billion in 2018, to $101 billion in 2019 to $135 billion in 2020 to $188 in 2021. In-fact the average growth rate for free cash flow over the past 10 years has been 51.4% for Alibaba. If you compare this to Amazon there’s is 37%. So Alibaba’s growing is quicker.

Revenue it’s a similar story. Gone from $250 billion in 2018, $376 in 2019 to $717 billion in 2021. Total equity, another important metric, that’s been going up as well. $436 billion in 2018 to $1.1 trillion in 2021.

So all the underlying financial numbers have been going up, the only one that hasn’t gone anywhere is the stock price. Alibaba stock is selling for the same price that it was selling for in September 2017.

These numbers just don’t make sense from a financial standpoint, and this is a big reason why Munger has put so much money in BABA. But that’s purely from a numbers standpoint, you also need to look at Alibaba from a qualitative perspective if you want to understand why Munger bought it…

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