Just curious if anyone on this board is coattailing on Munger'sinvestment in Alibaba.-Rubic
Nope....China reminds me of a pitbull. Although I'd like to go and give him a pet, he's too unpredictable and might bite my face off with no warning.
Both US nationalism and China nationalism are logical considerations as to if and what much to invest outside of your own country.
Yes. Sold some BRK and added significantly to a previously small position. Average price paid $227 and change.Munger carefully thinks through his investment decisions and rarely makes a bad one. Given he's investing DJCO shareholder money (OPM), he must have thought long and hard about this one. Or maybe not. In hindsight could be an easy "no brainer", with a huge margin of safety (minus the tangible geopolitical/regulatory risk - Ugh - along with the corresponding discount to IV ($330+)). China's economy will grow faster than the U.S.. Baba stock is cheap when considering the growth potential. China needs BABA to prosper. Company will be around for a long, long time. Dollar hedge. Early Chinese version of Amazon. Blah, Blah, Blah..800 million (and climbing) active Chinese consumers can't be wrong, can they?:https://www.statista.com/statistics/226927/alibaba-cumulativ...Consider my increased BABA position as somewhat of a gamble.Doubt it will go to zero, but could (won't kill us if it does). At current growth rates, could also be a five bagger in 10 years. I'll take that bet. Especially if I peer across the table and notice that Charlie has finally made a decent sized bet, after years of sitting on his a$$, doing absolutely nothing.Charlie Munger: "And the wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don't. It's just that simple."
BYD is the same considerations
Alibaba: From growth to valuehttps://lillianli.substack.com/p/alibaba-from-growth-to-valu...Jack is Missing and Alibaba is Tanking. Is is an investment opportunity?https://www.notboring.co/p/baba-black-sheep
" Nope....China reminds me of a pitbull. Although I'd like to go and give him a pet, he's too unpredictable and might bite my face off with no warning."And therefor, never invest in a Chinese company? This is a commonly held view. Am 100% certain that Charlie and Li Liu would disagree with you. Who is right?Below is a link to numerous comments from a sharp guy, living in China (apparently English born and educated) who posts on Seeking Alpha. He seems to have a decent grasp of what is happening in China, in terms of politics and business. While a number of his views are anti-American, he shares some insights on China and Chinese companies (including Alibaba) that are quite useful.https://seekingalpha.com/user/1028445/commentsCan you hold two opposing views at the same time?"People tend to accumulate large mental holdings of fixed conclusions and attitudes that are not often reexamined or changed, even though there is plenty of good evidence that they are wrong." - Charlie Munger
>> And therefor, never invest in a Chinese company? <<Or "never again" as it's too difficult: I own "China Mobile" shares (CHA), in my German brokerage account, held in the US. Thanks to a certain president of the past they are not traded any more in the US but at first glance (yesterday) my German broker doesn't give me another option to sell them (have to call them), so I am stuck with them.
Yes, I initiated a BABA position at $227 earlier this week as soon as the Munger news broke.Currently is 1.7% of my portfolio and I may take it up to 5% after doing more research.I previously had about a 3% position in BABA, but eventually swapped it out for (even) more BRK.B shares.
“I'll take that bet. Especially if I peer across the table and notice that Charlie has finally made a decent sized bet, after years of sitting on his a$$, doing absolutely nothing.”Agree! I started a very small position in BABA (<1%)and do plan to hold long term. As with the old EF Hutton commercial message- when Charlie and Lu “talk”... people listen! I will likely not make it a sizable position given unpredictable nature and control of Chinese government.
One of the best moves I've ever made was following Munger into Wells Fargo in 2008/2009. I was a chicken though, and bought more of the preferreds (then yielding a juicy 15%+) than the equity. I remember him hitting that $7-8 bid at the moment of maximum pressure. GW had said "this sucker is going down". Ahhh... mem'ries.There is so much to be said about this unique situation. Munger has done nothing other than sell down a few securities over the past decade plus. BYD is in the rear view mirror. Munger has direct access to Li Lu and others that offer tremendous insight into what's really happening in China. Beyond that, Munger's bet is a sizable share of the overall DJCO portfolio -- truly. Whale Wisdom indicates that it's roughly a 20% slug. Think about that one for a moment. Ol' Munger bet 1/5th of his wad over the course of a few months on something that you and I can get for roughly the same price.So yeah... sign me up. It sure beats the debate over whether the S&P will kill you quicker than inflation. Hah!
Looks like a compelling opportunity, though a bit scary given the uncertainty associated with Chinese stocks in general.Munger going into it so heavy is a heck of a recommendation. I'll be studying up on BABA tonight and think about buying some tomorrow.
If one does buy, the pink sheets, babaf or baba or some other way?
If one does buy, the pink sheets, babaf or baba or some other way?I'm just looking at BABA, the ADR listed on the NYSE, which represents 8 ordinary shares of the Chinese stock. Seems like the most straightforward way to invest.
Thank you. How I own BYD.Do you know what a sponsored ADS is??? That's how Charlie owns it
Do you know what a sponsored ADS is??? That's how Charlie owns itApparently ADS is used interchangeably with ADR, but refers to the individual shares instead of the entire issue of stock held on deposithttps://www.investopedia.com/terms/a/ads.aspThe 'sponsored' part refers to the issue/stock being supported by the company as opposed to non-sponsored ADRs that banks can put together without company support/participation.https://www.investopedia.com/ask/answers/041015/what-are-dif...BABA is a level 3 sponsored ADR.
I just bought BABA -- easy mode.
Thanks, again. I wasn’t sure I understood that clearly, about the ADR=ADS... I’m still not but I feel pretty comfortable with either.However, what would happen to our stocks, either type, BABAf or BABA, if they were delisted? Improbable but, it’s not a 0 in this world.Thanks, again.
This is not a 2-inch hurdle. If you don't know why Munger bought it, stay out of it. BABA is a derivative if I understood Jim correctly. None of you know its valuation. Is it worth $300? $1000? $5? Sheeple. If China disappears Jack Ma tomorrow, what is BABA worth? If Jack Ma hollows it out by spinning off subsidiaries and pocketing their contril, what is your derivative "share" worth?
However, what would happen to our stocks, either type, BABAf or BABA, if they were delisted? Improbable but, it’s not a 0 in this world.Delisting isn't the risk here.The risk in BABA is far greater than the risk in a normal ADR situation, sponsored or not.That's because of the interaction of the VIE wheeze and Chinese politics.In short, you don't own an interest in Alibaba the company at all, directly or indirectly.You own shares in a company with a contract that says it will get benefits proportionally to the fortunes of Alibaba the company.Is that contract enforceable in both its home jurisdiction (Cayman Islands) and in China when push comes to shove?In a word, No. Definitely not.Nobody should buy BABA without really understanding at least the basics of the VIE mechanics.Here is a randomly selected article on the subjecthttps://globescancapital.com/chinese-vie-structure-wall-stre...Quite a good write-up, actually.None of this suggests that the price of the security known as BABA won't go up in price.But it shouldn't be confused with an investment in Alibaba the company, or reliable fractional ownership of any asset or business.Any position size should be selected with that in mind.Jim
For your information:I talked with my broker regarding my CHINA MOBILE shares (ADR/5), held in the US but because of Trump's still valid order restricted from trading and as I therefore can't sell them in their current state effectively worthless for me. The process to enable me to sell them is (the following is 'simplified' I was told):1. First they will move to Luxemburg, for a fee of EUR 40. 2. In Luxemburg the ADR/5's will be converted into the normal shares, for a fee of USD 0,5 per share. With the share price currently at HKG 50 = USD 6.40 this is equivalent to paying 8% of the total value of my stock as a fee! Thank you, Donald Duck!
Would be interesting to see this question raised at a DJCO meeting.
Yikes, I had been trying to remember why I sold BABA a few years ago. It’s all coming back to me now!Does owning the HK security change things in any meaningful way? I think Berkshire owns the HK BYD security and was surprised DJCO bought BABA ADRs when 9988.HK exists. (Personally I owned the BYD HK version. I found that not all brokers deal HK but many do. I found I had to place orders outside of trading hours to deal with U.K. broker opening hours when HK closed etc. But believed it provided better legal status. I was probably wrong.)Presumably the VIE issue is not solvable with HK security?Agree this is an extremely important question at the next DJCO AGM if Charlie is in attendance. Not sure they would answer this VIE question at the BRK meeting. There is a saying - you can’t beat ownership. I always saw this China ownership issue as a risk but was not aware that Yahoo for example has already had the rug pulled from under them. Hard to argue this is a minor risk. That said, printing away a currency is another different type of risk. This investment game is not so easy. Despite this rather significant issue I trust Charlie’s judgment. I think...
Yikes, I had been trying to remember why I sold BABA a few years ago. It’s all coming back to me now!Does owning the HK security change things in any meaningful way? I think Berkshire owns the HK BYD security...It depends on the security.The prohibition by the Chinese government of foreigners owning shares in Chinese companies applies only to certain industries. Lots, but not all.In some cases you can buy the true shares.For most of the economically interesting picks, they go with a VIE to dodge the prohibition.That's where the lack of true economic interest comes in, along with no enforceable rights.I'm not certain, but I think BYD is one of the non-restricted industries and non-Chinese can buy true shares.I think that's what Berkshire owns.Mr Buffett has, quite reasonably, long espoused the view that shares should not be thought as gambling tokens, but as fraction ownership in a real business.That's NOT what shares of a listed VIE are. They're not even derivatives.There is nothing *wrong* with owning bits of a VIE, and you can certainly make money (I have), but there is a risk that it can all go poof in the night.And the investment being "tied to" a big and visible company doesn't remove that risk at all. Perhaps the reverse--ask Yahoo.Jim
Holy Taobao! Wow. Thank you Jim. I was not aware of that structure.I remember there was a problem with Tencent. But didn't understand it and too ignorant to care.So I have BYD -- and DJCO. Again, my question is is a sponsored ADS different than an ADR, because if not, why would Munger own it considering the VIE issues??? Asking Munger at the DJCO meeting is out since it's not again til next year. However, Munger might take that question at the annual meeting. As they say, they take all questions (which they do, mostly). However, if he doesn't answer to his specific purchases of BYD and BABA, he could be asked about the VIE structure and his participation in China.Jim, you did have a position in BABA, didn't you? Do you think the risk is greater, now, for China to pull the rug one way or the other due to on-going political tensions?Thank you.
Jim, you did have a position in BABA, didn't you? Do you think the risk is greater, now, for China to pull the rug one way or the other due to on-going political tensions?The risk has always been big. Maybe now it's bigger, hard to say.It's not just a theoretical risk.The massive theft of Alipay was (so I hear) challenged in court on the basis of the VIE contracts, and they were not upheld, and Yahoo definitely lost many billions.You would think the lesson would be clear to more rich foreigners.Yes, I have held BABA off and on, but knowing in advance it could all go away.The position was sized appropriately --- I guess you'd call it the high end of the "fun money" range.I doubled my money pretty quickly. When purchased at a good moment, that's probably still the most likely outcome.It's all about how comfortable you are with "most likely". Apparently Mr Munger is.I can picture him saying he's assessed the motivations of the CCP an believes it would be beyond the pale for them to screw international investors that badly, so they won't.As an aside, he once opined "personally, I wouldn't want 100% of my assets in a brokerage account at even the strongest financial firm in America."Yet he seems fine putting OPM into a VIE with no ownership rights.It might indeed be an interesting question at the AGM-- but I expect he'd shut down whoever asked it, on the basis that China is where the action is.Quite separately, don't try to make sense of Alibaba's financial statements and disclosures.It'd like trying to teach a bunch of cats to tap dance in unison...time better spent elsewhere.Even if they were based in London and listed there, there are (ahem) some remaining red flags.Again, that doesn't mean the price of BABA the mystery security won't go up.You don't own the company anyway, so what does it matter whether the company's books are right?The broad brush is known...they are profitable and doing well and still growing fast, and the BABA units will *probably* remain very roughly tethered to that process.Jim
Thanks, Jim. That's my thinking. I appreciate knowing more specifically the risks.Keeping it proportionate.
So Charlie has more covered risk than most. Figures.thanks.:)
Thanks for the info, said2.You know, I meant to get back to you on what I use as a signal in the market for correction. I wrote this whole thing and junked it, because basically, my signal is pretty vague. I apologize. What is it? Nervousness, when things don't make sense.So, I have an extremely small circle of competence and everything I do is proportionate to that. My main focus is Chapter 8 in The Intelligent Investor, since that's what Buffett pointed me to. It's the only thing that logic alone can value. Numbers and knowledge of accounting and access to inside information and research are not my strong suits. Doesn't mean I don't try, but I don't expect a lot from my attempts alone. A lot of triangulation.I also use the character of the people I listen to. I am long Buffett and Charlie and certain people on this board, the cultures of certain companies. Not blindly, but I value their opinions.So it's an art, right? I may not have much talent but I enjoy it and it's given me some fulfillment. I try to stay within my circle of competence and keep my expectations low.Thanks for asking!
Jim,From your descriptions it seems like owning BABA is like owning an NFT of a Picasso painting. You might not own the real thing, but you might still make money as long as CCP or Ma allows US investors to keep pretending it is as good as owning a real Picasso painting.While on the Picasso topic, here is a hilarious piece from Matt Levine,s Money Stuff column in Bloomberg: (scroll to the end of a long piece)The guy called up Christie’s and was like “Hi, I have tens of millions of dollars that I’d like to spend on nothing; if I gave you $20 million would you sell me a digital receipt entitling me to nothing?” And “the team in China was clever enough” to sell him a Picasso instead. Like, “Oh yes, we appreciate your sophisticated taste in nothing, but we are fresh out of nothing; have you considered that tens of millions of dollars will buy you actual paintings by famous artists? Perhaps you have heard of literally Picasso?” Look, I appreciate the effort, but if I were the Christie’s team I would have said “Hang on, we have a nice Picasso, let me mint an NFT of it.” Go make an NFT saying “this NFT entitles the bearer to absolutely no rights to Picasso’s ‘Femme nue couchée au collier (Marie-Thérèse),’” put it on the blockchain, sell it to the guy for $21 million — because, remember, he wants NFTs, not Picassos — and then go sell the actual Picasso separately to someone else for $19 million. Then someone who likes paintings would own the Picasso, someone who likes NFTs would own the NFT of the Picasso, and Christie’s would collect two fees. https://www.bloomberg.com/opinion/articles/2021-04-05/bill-h...
“ Yes, I have held BABA off and on, but knowing in advance it could all go away.The position was sized appropriately --- I guess you'd call it the high end of the "fun money" range.I doubled my money pretty quickly. When purchased at a good moment, that's probably still the most likely outcome.It's all about how comfortable you are with "most likely". Apparently Mr Munger is.”Nice perspective and this is exactly the way that I look at this position. CTM and Li Lu are undeniably Brilliant, and I will bet on the Munger horse, realizing it all can go poof.I would love to hear a straight answer on the Alibaba position from Charlie at the ASM next month however both CTM and WEB very rarely discuss any specific positions and only comment in broad generalities. If Chinese middle class continues to thrive , $$$ goes East and China wants to compete and attract international interest and investment, I would imagine BABA would likely prosper over time.“Know what you know and know what you don’t know.” Imagine this would be in Warren’s “Too Hard” pile but obviously Charlie feels good about the investment for DJCO and likely Himalaya. I do like the odds here for a small position.
what would happen to our stocks, either type, BABAf or BABA, if they were delisted? Improbable but, it’s not a 0 in this world.Without delving into the BABAf OTC listing of the company, BABA is a level 3 ADR/ADS in which a single share sold on the NYSE is backed by 8 shares of ordinary stock in Alibaba Group that is held on deposit by the backing bank, like other ADR/ADS stocks that are commonly invested in without much worry. If BABA were delisted from the NYSE while the Chinese company and ordinary shares continued to persist and have value, I assume that the chain of ownership would persist and the US investor would end up with direct ownership of 8 shares of Alibaba Group Chinese stock per ADS held. I'm not sure exactly how that transfer of ownership works, though I do assume the chain of ownership is solid or else people would not invest in ADRs. Please do not rely on my assumptions or statements to do your investing! :)I've personally gone ahead and bought some this morning after studying up on it last night. I'm sure my level of due diligence could/should be higher, but the company/price looks good to me.
BABA is a level 3 ADR/ADS in which a single share sold on the NYSE is backed by 8 shares of ordinary stock in Alibaba Group that is held on deposit by the backing bank, like other ADR/ADS stocks that are commonly invested in without much worry. Doh! I wasn't aware of the VIE structure that Mungo posted about further in the thread. Thank you, for that, Jim. That's an eyeopener, for sure.
Another investor who has recently made a large investment in BABA is Greg Alexander.Alexander, who runs Conifer Management LLC purchased 600,000 ADR (VIE's, whatever) in Q4 2020. As of December 31, BABA represented 8.5% of his portfolio. Conifer's portfolio is comprised of only 14 holdings.https://dataroma.com/m/holdings.php?m=CMAlexander, a former Sequoia Fund manager, was reportedly named by Buffett as one of the top three managers that he would feel comfortable investing his money if he retired. The other two being Seth Klarman and Li Lu. (Can't find Buffett's direct quote, but Bruce Greenwald has reported it)https://www.valuewalk.com/2010/06/buffett-anounces-favorite-... While still alive, Bill Ruane spoke very highly of Greg."Twelve years ago, Greg Alexander joined us out of Yale where, despite his economics degree, it appears he spent most of his time reading annual reports. He is highly creative and still spends at least eight hours a day consuming annual reports. I don't know anyone who processes more ideas with greater analytical depth and he is excellent at cutting through to the heart of an issue. He is a master of chewing through immense detail to reach original insights and judgments about our portfolio companies."Bill RuaneSequoia Fund(1997) http://www.secinfo.com/ds2zp.87q.htmWith Alibaba's nearly 400 page annual report, sounds like maybe this guy Alexander may be up to the task.https://doc.irasia.com/listco/hk/alibabagroup/annual/2020/ar...
Here is an interesting series of articles reviewing the history, present and potential future of the VIE structure in Chinese business, finance, investing.http://www.hk-lawyer.org/content/vie-structure-past-present-...http://www.hk-lawyer.org/content/vie-structure-past-present-...It gives some reasons to believe that the Chinese government has swung in the past 6 years from attacking the VIE structure to tacitly approving it ... seemingly the big corporations/owners etc ... who are tied to the structure, won something of a power struggle during that time.There's clearly still substantial risk.
From your descriptions it seems like owning BABA is like owning an NFT of a Picasso painting. You might not own the real thing, but you might still make money as long as CCP or Ma allows US investors to keep pretending it is as good as owning a real Picasso painting.Not only fairly apt as a metaphor, but impressively timely!Oddly enough, I was going to buy some digital art recently. Purely because I like it, and (perhaps more so) because it was cheap. A compelling combo.It's sold via NFT, requiring an Etherium account to make the payment.That's the step that stopped me!Not that I have any particular problem with paying for what amounts to intellectual property rights, but dealing with one of those exchanges ... meh.Maybe I'll just take the art to view.It's on the chain in full resolution for anyone to see, and to validate the "registered" owner...who won't be me.Maybe I'll be old fashioned and stick with fungibles.Jim
He is a master of chewing through immensedetail to reach original insights and judgments about ourportfolio companies."Bill RuaneSequoia Fund(1997) Haha, and how have the investors in Seqouia Fund, or for that matter all of the Graham-and-Doddsville stars, done? Bogleheads have trounced all these Masters of the Value Universe.It's quite funny watching these people get idolized for being dumber than an index. That includes Buffett.
If CCP screw up US investors by not honoring the VIE, what will happen to all these USD assets CCP officials have in USA.. most of them, if not all, they all have real estates in NYC or LA.
Without delving into the BABAf OTC listing of the company, BABA is a level 3 ADR/ADS in which a single share sold on the NYSE is backed by 8 shares of ordinary stock in Alibaba Group that is held on deposit by the backing bankI think that if you dig you'll find this statement is false.The underlying assets of BABA is a share of a Cayman Islands company "Alibaba Group Holdings Limited" which has sundry contracts with Alibaba the well known company in China.There is nothing in the chain of ownership or trustee ownership which is a share of Alibaba, the well known firm incorporated in China.Not directly, not indirectly, not in-in-indirectly.Simply put, it's against Chinese law to own a share of a Chinese company in certain listed industries, including that of Alibaba.Since they're a firm based in China, that's the jurisdiction that matters.If you try to assert any right you think comes along with ownership (direct or indirect), the result is going to be predictable.Amusingly, in the specific case of the Alibaba VIE, I understand it has already been tested in court and failed the test.(hence the successful outright theft of so many billions worth of Alipay/Ant)I'm sure my level of due diligence could/should be higher...Possibly.Have a look at the prospectus.Waaaaaaay down in the list of "risks" you'll find this nugget:"If the PRC government deems that the contractual arrangements in relation to our variable interest entities do not comply with PRC governmental restrictions on foreign investment, or if these regulations or the interpretation of existing regulations changes in the future,we could be subject to penalties or be forced to relinquish our interests in those operations....If we or any of our variable interest entities are found to be in violation of any existing or future PRC laws, rules or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including revoking the business and operating licenses of our PRC subsidiaries or the variable interest entities, requiring us to discontinue or restrict our operations, restricting our right to collect revenue, blocking one or more of our websites, requiring us to restructure our operations or taking other regulatory or enforcement actions against us.The imposition of any of these measures could result in a material adverse effect on our ability to conduct all or any portion of our business operations. "Jim
If CCP screw up US investors by not honoring the VIE, what will happen to all these USD assets CCP officials have in USA.. most of them, if not all, they all have real estates in NYC or LA. Revenge would be justified, if for example they did it for political reasons and simply ignored the laws.But the Chinese law is clear...those who aren't Chinese citizens are prohibiting from owning these firms.Some companies have cooked up what they think is a workaround, and got some lawyers and accounting firms to say warm words about it, but we all know it's not allowed.The letter and intent of the law are both clear, and we already KNOW that multiple VIEs have been invalidated.It's in the risk factors of the prospectus.The key fact is that the Cayman company doesn't own the Chinese company. There's no ignoring it.So the complaint a against the Chinese government would be...what...they didn't enforce the rules on every criminal operator at the same time?Not exactly a casus belli.Hey, I'm not fan of the enforceability of Chinese law. They can do bad things to you even without any justification, so you're not very safe as a baseline assumption.Even talking about the notion of what's legal in China is kind of moot.But when they have such a clear legal justification, it's not likely you'll be as well off as that "not very safe" level achieved by those following the law.Jim
So given all this, how does Munger justify ignoring Rule #1? 97-year old swinging for the fences?
So given all this, how does Munger justify ignoring Rule #1?97-year old swinging for the fences? Mr Munger is a contrarian!He has no shyness about his own opinions, either.Everything has remote risks.It's a fine judgment which of those risks really matters.I presume he figures that in this case it is small enough to be ignored.What surprises me is that it's potentially a risk of big magnitude.A remote risk that makes a firm worth 1/3 less than you expected can be handled with an appropriately margin of safety on the entry price, no matter how big the position.But if a risk could get you a zero, that's a problem.I can only conclude that he thinks that is effectively impossible.Speaking of which, Apple is a big part of Berkshire, and the Chinese business is a big part of Apple.We should all be emotionally and financially prepared for the possibility that some fraction of Berkshire's value might completely disappear permanently overnight if chairman Xi is in a bad mood from indigestion.Jim
Firstly, kudos to Mungofitch (again) for aptly positing a reasonable response from Munger to a question on the subject:"I can picture him saying he's assessed the motivations of the CCP an believes it would be beyond the pale for them to screw international investors that badly, so they won't." In the spirit of trying to keep things simple, here's my reasoning:1) Munger is brilliant and I'd probably follow him into a burning building ...so I'm biased, but will try to go past #1...2) Munger has tremendous insight into the Chinese market. Beyond Li Lu (who is also brilliant and has a remarkable *current* track record), I trust his judgment on VIE structures and government behavior far more than the critics.3) Munger made a *huge* bet with OPM indicating a true moment to wake up and understand the rationale4) OK now the (admitted) idiocy of analysis and upside:Firstly, as Mungo points out, we have no clue what the company's earnings are (and when I say company, I appreciate that the VIE structure separates us even further from the truth), but here are two ways to perhaps contemplate this very sloppily:- Yahoo finance says something like 25 x earnings- Annualizing the "reported" Q4 2020 "Non-GAAP Net Income" of USD$11.95 * 4 = $47.8B vs Market Cap of $600 B yields a PE of 12x (earnings for Q4 were up some staggering 50%+)Let's call of the above "pure garbage" though and pick the highest number and round it up -- say the PE is more like 30x (which adds a thimble of conservatism by any standard). Even so, this is a far cry from the big tech earnings multiples we see here in the US (or even for the S&P broadly). I was lamenting that multipl's S&P PE is at 42x.Is there a decent argument that the VIE could be worth 2-3x+++? Sure. A year or two of earnings and an uptick in the PE would do it. It would take a bit of stability across all the various shocks being priced into the security right now (geopolitics, VIE structure, Jack Ma's disappearance, etc) and reasonable growth. Any bet (beyond following Munger into the burning building) implies some form of opinion on the above. I'd be thrilled to read anyone else's homework here.
It’s all very interesting. It all seems quite obvious now that Mr Munger believes:. There are always Government risks. Any Government can put their hand in your pocket if they decide to. They can tax you. They can regulate you. They can turn the currency to confetti. . The political system in China is far from perfect but it is delivering economic growth and it will probably outperform other leading nations over the next decades. “It’s their time” Mr Munger once said of China. . Alibaba is in a strong position and is reasonably priced.I would add. If China dramatically changed course and turned away from the current version of capitalism with the consequences of ADRs getting wiped out, Apple closed down in China etc. While possible, it would be a pretty dramatic development. If we wait long enough China will eventually fail but then so will the US and every other society just like Rome. Maybe this is a risk that is not worth worrying about RELATIVE to the risks to other nations. Maybe we worry too much. Maybe in the long term we are all dead anyway. Maybe the risk/reward of doing nothing is a worse. Sorry that was utterly useless. Hopefully Mr Munger addresses this issue in May at the Berkshire meeting. We will all be listening...
Took a small position in this today of only 1% based on CM buying and fwd PER of 19.Matched by a small position back into Viacom which has now just reappeared on ye olde value screen!
Link to a podcast on Baba (the business):https://podcasts.apple.com/us/podcast/alibaba-a-giant-among-...
1) Munger is brilliant and I'd probably follow him into a burning building2) Munger has tremendous insight into the Chinese market. Beyond Li Lu (who is also brilliant and has a remarkable *current* track record), I trust his judgment on VIE structures and government behavior far more than the critics.3) Munger made a *huge* bet with OPM indicating a true moment to wake up and understand the rationale4) - Yahoo finance says something like 25 x earnings...round it up -- say the PE is more like 30x (which adds a thimble of conservatism by any standard). Even so, this is a far cry from the big tech earnings multiples we see here in the US (or even for the S&P broadly)...Is there a decent argument that the VIE could be worth 2-3x+++? Sure. A year or two of earnings and an uptick in the PE would do it. It would take a bit of stability across all the various shocks being priced into the security right now (geopolitics, VIE structure, Jack Ma's disappearance, etc) and reasonable growth.Yep, that's the gist for me. I'd been intrigued by Alibaba for years but wouldn't invest due to the murkiness of it being a Chinese company. Munger's big investment is a huge stamp of approval that got me over the hesitancy. The company seems to be phenomenal in terms of earnings, growth, and positioning making it look a real value, if we can believe the reported information on the company and if we can trust the company and Chinese government won't screw foreign investors.The article mungo posted about VIEs was pretty terrifying, but seems a bit one-sided. I.e. regarding the Ant Group/AliPay business being spun off from Alibaba, he doesn't mention that Alibaba retains a 33% ownership of that business, (from another article posted in this thread) instead implying that the company was simply and entirely removed from Alibaba. There also seem to be some significant signs that the Chinese government has backed away from hostility to the VIE structure and has even shown the first inkling of official acceptance.The murkiness of it being Chinese, and now learning about the additional significant layer of murk inherent in the VIE structure, these are risks, but I feel good about my bet today at ~ $222/share for BABA, in no small part because of the Munger stamp of approval. It would hurt a bit if it went to zero, but wouldn't be a big problem for me. I certainly wouldn't bet the farm on it, but the risk/reward seems good to this fool for my smallish but significant (to me) bet/investment.
Everything has remote risks American companies like EBay, Google, Amazon has failed in China. While it is a simple observation, if one were to go behind the reasons of why they failed, you can understand China.So, if American/ Western businesses can be screwed in China, trust me American investor can be too.
Speaking of opportunities in China, I recall Petro China working out pretty well for us 2002-07 with a 3.6B gain I believe.Annual average compounded return: 52%Total return: 720%Different time, different business but worked out quite well!
Speaking of opportunities in China, I recall Petro China working out pretty well for us 2002-07 with a 3.6B gain I believe.Different time, different business but worked out quite well! Another difference is that it was in an industry that allowed foreign ownership of shares.No VIE risk, at least.Jim
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