In their latest episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discuss Charlie Munger Buys $BABA. Here’s an excerpt from the episode:
Toby: Well, should we talk about Alibaba a little bit?
Bill: For sure.
Toby: Does anybody know anything about Alibaba?
Bill: No, it’s Chinese and big.
Jake: Never heard of it.[laughter]
Toby: JT, do you know something about it? What’s happened? Charlie Munger, there’s has a filing from DJCO, Daily Journal. Charlie Munger never buys anything ever. All of a sudden, there’s a big holding in Alibaba. Presumably, it’s come through his relationship with Li Lu because Li Lu has owned it in the past. Li Lu sold it pretty quickly too. He punched out to go on by Google, and–[crosstalk]
Toby: Was it Micron? Do you know the stock at all?
Bill: I haven’t done enough work at all. I’ve got some issues with some of the Chinese ADR stuff that I haven’t fully been able to get over, and maybe that’s because I was born in America and I’m fine to admit some home country bias there. Jake, do you want to take this, or do you want me to go and then follow on?
Jake: Oh, you can follow on the grenade.
Bill: Okay. Fantastic. Thank you for that.
Jake: You’re welcome.
Bill: Look, I have some problems with the way that Charlie talks about China and my perception of authoritarian regimes. But I think that Charlie also has been very open about the fact that he thinks that China has a very bright future. I saw one person on the Twitter machine didn’t love that Charlie had gone into tech, because he felt he was getting outside of his circle of competence. One, he’s Charlie Munger, so I’m going to defer to him. And two, that dude’s talking to Li Lu all the time. If you think Li Lu is a good investor, maybe Charlie doesn’t have the best pulse on where that company is going forever. Charlie’s also like, what, 92?
Bill: Okay, seven. Okay, my bad. My bad, Charlie. I didn’t mean to disrespect your age. What’s his lifetime frame?
Jake: Doesn’t look a day over 92, though.
Bill: This guy is making a purchase that’s almost certainly going to go longer than his life. I don’t know how you can have an informed opinion on why he did this unless you know about the succession planning at DJCO, who’s going to be advising them, how he’s told them to run that position, what he’s told them to look at. My two cents is if it’s just simply I’m going to clone Li Lu on this idea, because I think this guy’s that smart and I think this asset base in that country is that good, and it’s trading at a pretty reasonable multiple, what I’m going to go with, Charlie for that?
That’s fucking awesome. That’s what I’ve gotten at these guys forever about not morphing, and now he morphed. If he pissed some people off, because they think he got outside of his competence, or people don’t understand it, Charlie’s never done anything to make anybody else understand what he’s doing. I have mad respect for it.
Toby: JT, do you have a view [crosstalk] itself?
Jake: No. A few things there, probably more general to China. The me of 10 years ago would say that this can’t work, because they don’t allow the little fault lines to clear through so much authoritarian overriding, so much government involvement with what gets funded, where the money goes. From a capital allocation, societal standpoint, there has to be a misallocation of capital that’s happening that eventually will be have to shake out. You have to write down all this debt. Because if you build a bunch of cities that no one’s living in, like he did it with debt, eventually something has to give there. Debt only goes away when you grow into it or cashflow it enough to pay it off. If you don’t have the cash flow, because no one’s living there, then you have a problem. Well–
Bill: Those zombie cities were crazy.
Toby: Don’t they owe that debt to themselves? Isn’t that what Krugman always says about the US debts?
Bill: MMT, spend it and owe it to yourself, it doesn’t matter.
Jake: Well, that’s where 10 years ago, I would have said like, “That’s crazy,” and, of course, it matters eventually. Maybe it’s just not the right. The timeline hasn’t happened yet. Today, I’m not so sure anymore. I’m much less ideological when it comes to that, even the authoritarian part. I have my biases towards capitalism.
Bill: Oh, poor Jake, you are about to upset some people.
Jake: I know.
Bill: Can I ask you a follow-up? Wait, let me ask you a follow-up on how you’re thinking about that. If you’re thinking through all of the spending coming from the government down, would you maybe think that the earnings base like, the velocity of money that’s going through Alibaba is artificially propped up, and if that spending declines, then you’re actually underwriting your perception of what normalized earnings are is artificially boosted? Is that kind of what you’re thinking?
Jake: Sure. If you’re growing GDP at 6% and Alibaba is levered at that plus something, and that GDP number is a misallocation for half of it, well then, eventually it has to be liquidated, and that half has to be written down in Alibaba as well. It’s not a real tangible as much tangible, not in a tangible like physical, but a true earnings power. I think it’s a little bit more complicated than that now. My thinking is maybe a little bit more nuanced to the point where I have much less certainty about it.
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