Charlie Munger explains why Alibaba was one of his worst mistakes in 2023, after defending this ecommerce company last year.
Charlie’s latest insights on Alibaba makes me wonder if Daily Journal sold off this stock in Q1 2023, or if they’ll continue to hold onto it until their investment recovers someday.
At this year’s Daily Journal (DJCO) meeting, Charlie 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 Internet. I didn’t stop to realize they’re still a God damn retailer. It’s going to be a competitive business, the Internet. It’s not going to be a cakewalk for everybody.”
One of my friends and I were puzzled about this change of heart because Charlie still loves Costco, which is in retail. So why did Charlie turn so sour on BABA? He said of Alibaba: “it may be online retailing, but it’s also still retailing. And I got a little out of focus and that let me overestimate the future returns from Alibaba.”
Many of us know that ecommerce companies operate on very thin margins, including Amazon, but the American ecommerce giant was able to make their cloud business AWS a roaring success. One wonders if Alibaba Cloud could also carry the ecommerce business someday.
Even though Charlie got interrupted by sound issues, he did say something to the effect of he never makes the same mistake twice. To make sure he learns his lesson, even at age 99, he said about mistakes: “when I do those, I keep rubbing my own nose in my own mistakes, like I am doing now because I think it’s good for myself.”
Becky Quick of CNBC fielded several Alibaba and China-related questions toward Charlie, which he answered more briefly this year than last year.
The irony is that even though Charlie no longer thinks of BABA as a good investment, he said “you can buy better, stronger companies at a cheaper valuation in China than you can in the United States,” as he was gloating about BYD, an electric vehicle company that made him and Berkshire loads of profits.
He continued, “so you’re getting the extra risk that can be worth running, given the extra value you get. That’s why we’re in China. It isn’t like we prefer being in some foreign country. Of course, I’d rather be in Los Angeles right next to my house. It will be more convenient. But I can’t find that many investments right next to my house.”
I’m sure many of us would prefer undervalued assets in our home countries without having to look through murkier, foreign equities. Maybe this is a great lesson to all of us, that as great of an investor as Charlie is, nothing is guaranteed in investments.
Who knows though, maybe Charlie could eventually prove right about Alibaba if they can find a way to hold their competitors in check. I’m hoping the Alibaba Cloud comes to their rescue, but we’ll have to see whether DJCO still owns BABA come early April 2023 when their 13F is likely to come out.
Something I didn’t mention in the video is just when a lot of superinvestors have bailed out of BABA, Michael Burry has bought a small position in it and another Chinese ecommerce company. Lets see whose investment thesis prevails in the end!
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