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charlie munger's back at it again not for the first time but the second time this year charlie munger has purchased alibaba shares after almost a decade of no movement whatsoever in the portfolio charlie munger has added twice this year to alibaba if you haven't been paying attention to what's been happening with alibaba shares in the open market then i commend you and applaud you because i believe that that is the correct approach but basically alibaba has been having a pretty tough year as far as the share price is concerned alibaba shares are down almost 50 percent in this past year and despite all that charlie munger just doubled down on his position in alibaba but what's the significance of this move in light of these changes i wanted to discuss why i think it's important that charlie added so much to his existing alibaba stake also cover the actual portfolio change for the quarter okay first let's discuss what the significance is of charlie munger adding over 80 percent to his position in alibaba some investors are probably breathing a huge sigh of relief especially if they follow charlie munger into alibaba there have been non-stop negative headlines coming from chinese tech companies and regulations in china so why the heck would charlie monger almost double his current position in a seemingly troubled company well i think understanding charlie's philosophy will really give us some clear answers about that question any student of warren buffett should know that charlie munger is responsible for teaching buffett that buying a wonderful company at a good price is much better than buying a good company at a wonderful price so munger is basically looking for wonderful companies and as i mentioned earlier in the video before his first purchase back in the first quarter of alibaba there wasn't any portfolio activity since 2014 so monger has no problem doing absolutely nothing in the portfolio for years at a time so if he can't find a wonderful company at a fair price then he's not going to do anything another core tenant of monger's approach is that he wants to be extremely concentrated in a handful of wonderful companies he's been quoted as saying the whole secret of investment is to find places where it's safe and wise to non-diversify it's just that simple in addition to that his first stake was 20 of the daily journals portfolio and a few quarters later he has now almost doubled the stake after it had decreased in market share to almost 20 percent of the portfolio once again another core belief of mongers is that the current share price of a company does in no way necessarily reflect the intrinsic value of the underlying business with a few of these core tenants we can start to put together a picture of why monger re-upped on his position first he has seemingly found in his opinion a wonderful company that has high returns on capital number two it's clear that monger thinks that this company is trading at a fair price if not a wonderful price so he's getting a wonderful business for a wonderful price and number three he believes in this idea so strongly that he was willing to double down even though his position has been almost cut in half at this point it's clear that monger doesn't give a damn about any of the headlines about china or chinese companies in fact munger is a pretty big admirer of the growth of prosperity within china and rightly so so it doesn't seem that munger is too concerned about regulations concerning the vie structure or potential delisting of alibaba he doesn't seem too concerned about any of the anti-monopolistic regulations or potential common prosperity investments or donations on the behalf of alibaba simply put charlie finds it wise to not diversify out of alibaba and actually continue to add the mainstream media's thinking and charlie munger's independent thinking necessarily do not match and in this case they clearly clash both warren buffett and charlie munger share the sentiment that when they see a fat pitch going right straight down the plate they're going to take a big swing and hope for a home run now i understand that munger's personal stake in these shares of alibaba is not that significant compared to his overall net worth but he is investing on behalf of his shareholders and it is his duty as chairman of the daily journal to invest their money as if it were his own whether or not you agree with charlie's move it's still worth paying attention to at the very least we can ask ourselves questions about the business have our assumptions changed in any way have the underlying fundamentals of the business changed at all i believe if i were able to ask charlie his answer would be probably not so to sum this all up despite the extreme decrease in share price over the past couple quarters in alibaba monger still believes that the risk reward of this situation is the best use of his capital at this time monger is nothing if not rational so to evaluate the opportunity cost of this compared to all the other stocks that he could have invested in it is a pretty clear indication that he still really believes in the future of alibaba not to mention that it's probably grossly undervalued at this point monger only swings when he has rationally evaluated the pros and cons of any situation and thinks that the investment case will come out in his favor i really wouldn't be surprised to see monash probably add more to his shares in alibaba because of course his position has decreased over this past couple quarters as well so he has been adding for the past two quarters and yeah quarter three is probably going to be the same thing he wants to get that position back up to a ten percent assuming he agrees with charlie that the underlying business has not changed speaking of other super investors cloning charlie monger i might not be shocked to see lee liu reenter alibaba at this price point it's probably such a tantalizing value at this point that even lee liu might be interested again and who knows guy spear the notoriously cautious investor might add a little bit to his stake it's not as big as pabrae or munger but he may be willing to take another swing at this company that of course is all speculation but there are certainly admirers of charlie munger's philosophy and approach to investing so there would be no surprise over here at the very least we usually know why an investor buys a certain position and that's because they think it's undervalued at the end of the day alibaba might be undervalued and it might not be it depends on how real the risks are and if the risks are real or perceived but i think now it's pretty clear what charlie thinks about the risks i've got a video over here if you're interested in learning a little bit more about the regulations going on in china so here we have a wonderful company trading at at least a fair price with a rationally calculated odds of the investment actually turning out well for monger this certainly isn't a recommendation to buy alibaba stock or if you already own it add more because there are certainly risks with any investment but particularly this one but at the very least we can take some of these data points from charlie's philosophy and combine them to come up with a pretty clear picture of the idea that he probably still believes in this company some people might be calling charlie senile or out of touch with what's happening in the real world or maybe we're seeing the tried and true charlie monger going through these same exact waves of emotion and turmoil that he's seen throughout his entire career i can't say whether or not he's right and he can't say whether or not he's right but it seems like he thinks he is right so that's a little bit why i think this move actually matters for monger but let's hop over to the actual portfolio and look at the specific change that he made here on dataroma we can see that alibaba makes up about 19.86 of the portfolio and the recent activity indicates that he added 82.71 to his existing stake now of course that stake was almost cut in half from the previous buy back in the first quarter of this year the quarter started on july 1st so munger bought this stock anywhere from 221.87 per share all the way to the end of september to 148.05 per share you can also see that the market cap for the company is now about 424 billion dollars and when he first bought into the company i think it was somewhere around 650 billion dollars so that's a pretty big range at the beginning of the quarter the shares were priced at about the same price that he took his initial stake in around that 225 to 30 dollar mark well that's just a guess based on the lowest price of the first quarter but if charlie was able to bottom take this at about 150 dollars per share he is getting a huge discount on a company that he already had a lot of confidence in in the first place so when the market gives monger these softballs his only reaction is to swing for the fences now it certainly would have been concerning for alibaba shareholders if munger had actually sold 80 of his stake that would be a clear indication that he no longer has high conviction in this company because it's either he's pretty much all in as one of his few positions reserved in his portfolio or you're basically completely out this is just another example of munger being able to sit through perceived market turmoil and simply in his opinion take the right action which is to add to a company that he believes is a wonderful business i mean it's pretty much that simple if the market gives you an opportunity to buy shares in a business that you love at a lower price than the last time you bought it then munger's going to take that bet 10 out of 10 times i share the opinion with monger that the underlying business probably hasn't changed that much even with all the headlines and regulations so i am personally comforted to see monger make this move i quickly want to go to the activity tab over here on dataroma because looking at charlie munger's tab is pretty much the shining example of how i'd like to manage my portfolio he's made three moves in the past almost a decade at this point and i think that's just a fantastic approach munger is not eager at all to swing but in this case he's found two opportunities in the past year to buy the same company up so all in all it looks like charlie munger definitely still believes in alibaba's business and probably thinks that the outcome for him as an investor and his shareholders in daily journal is going to be in their favor like i said before monger is getting the opportunity to buy a wonderful business at the very least a fair price if not a excellent wonderful price only time will tell if munger is falling prey to hubris or the inability to know all of the unknowns that are out there regarding alibaba chinese government regulations anything of that nature i for one believe that charlie munger is one of the most rational human beings probably on the planet and i admire his decision-making ability above almost anyone else's i'm not saying that everybody else is wrong and charlie munger is definitely right but i will say that i very much pay attention when charlie monker makes changes if you want to learn more about alibaba you can check out my video over here where i discuss the core business of alibaba with frank tabor i also have a video over here where i discuss tom russo's opinions about the regulations in china concerning the tech giants like alibaba and tencent thank you so much for watching this all the way to the end please like the video and subscribe to the channel if you enjoyed this i really appreciate your time and i will see you in the next video
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