Is Charlie Munger Wrong on Alibaba? BABA Stock Analysis

did charlie munger make a mistake by investing into alibaba the stock is down around 50 from its all-time highs and around about 40 percent since charlie munger invested in the stock after charlie munger invested into the stock we had a range of great super investors that also entered a position monish pariah bought in at around 220 dollars maybe slightly lower we don't know the exact price but we know he's also down about 30 or 40 percent on his position then we have a range of other great super investors like phil town rob van now guy spear that all entered in at around that 200 price tag and now it's down all the way to about 145 dollars per share meaning they're all down at least 25 and in full transparency like i always am here in the channel i also entered alibaba at around 210 dollars i averaged down slightly but my average buy-in is still around that 200 mark i'm also down very significantly on the position so in today's video i just wanted to sit down and have a chat about whether or not charlie manga might be wrong and not just charlie munger monish for briar field town everyone else including myself are we all wrong about alibaba and investing in china [Music] so if you're new to the channel my name is frank and here on the channel i cover a range of value investing topics and honestly there's been no more popular than alibaba alibaba content is everywhere on youtube it's not only the super investors that are buying into this stock all of the other value investors here on youtube are also buying into this stock and we're all down pretty big so let's jump in and have a look at some of the ways we might be wrong i think with every investment we need to really invert our thesis and see what's the other side of the argument why are most people the overall market selling out of this why is it down 50 in the first place now probably the first thing that stands out is the chinese communist party there is a range of different risks that come when you're investing into china most of them being around regulatory risk from the chinese government and of course it is a communist country things get done really quickly of course in america or australia or the uk our governments are also trying to crack down on tech particularly in the us with some of these huge big tech companies there's crackdowns happening as well there's regulations being put in place but it does take a long time for any action to really happen so the market doesn't recognize it so quick it's not all of a sudden it might take five years to get a reasonable regulation put in place that does hurt a company like apple or facebook but over in china being a communist country with so much power centralized power it happens very quickly some of these changes we're seeing to big tech including alibaba is pretty much happening overnight but it's also important to talk about the fact that what we see here in western media in the countries that most of the people here watching the channel live in the media is pretty negative and pessimistic about all things china it's a very popular thing to talk about it's the reason all of us youtubers including myself are sitting down and making this video a lot of people want to hear about china right now and probably the most popular thing to do is to bash on china i know i'm here probably sticking up for alibaba and some of these tech giants in china but the mainstream media really isn't doing that they get clicks by posting some hot new news out of china that's going to affect these huge big companies like alibaba and 10 cent jd.com and everything else they're quick to post this news and of course most of this news is negative we can't deny that there's negative impacts happening on alibaba but i certainly think the western media is over dramatizing that they're really emphasizing how bad these things are when in reality i don't think they're all that bad certainly there are some things though one of the more recent things is around tencent and alibaba and pindua dua that are all being forced into these donations by the chinese government and the media is kind of reporting them as taxes from the government on these chinese tech companies but really they're far from that the media would like you to think that they're happening overnight and alibaba and tencent are both paying 15 billion us dollars to the chinese government but really it could be just a reinvestment we know that the time frame is actually much longer than has been made out in the media it's actually over a five-year time span so the annual contribution is much lower and we don't know exactly where that money is going we have a rough idea and it is to do with this common prosperity um initiative in china but there's a chance that there is a return on these investments or donations or whatever you want to call it that might come in the future so it's maybe not just giving away 15 billion dollars over five years we could see returns on those investments and worst case scenario we'll see a positive brand image for alibaba the chinese people are going to like the fact that a huge tech giant is donating billions and billions of dollars and the poor people that this is going to help out these people still living in a very very low quality of life they're going to be positively positively impacted by this and in the future they may be customers or consumers of the alibaba services and products so certainly you don't want to see a company giving away or investing with low returns large amounts of money but all of these tech giants around the world including apple and facebook and everyone else do this with their money it's just been really pushed by the media in a really quick time frame that this is going to hurt the chinese tech giants another thing that jumps out in the media of course is evergrand this whole evergreen situation is all you see in finance media again it's all over youtube as well everyone's talking about evergrand and in all likelihood this is a very bad situation for the chinese econ economy it's going to really impact the real estate companies and real estate developers which makes up around 25 or more of the chinese gdp so of course yes this is a bad thing but the way some of the media is spinning that like it's going to cause this huge global financial crisis it seems pretty unlikely in my mind sure there might be some impacts around the world and it could be felt fairly heavily and the market could be affected but the way some media is spinning it like they do with everything else coming out of china particularly us media it makes it seem a lot worse than it actually might be so i think the main caution to alibaba shareholders that you need to consider is when you see all this news coming out make sure you interpret it yourself don't just take a headline or read through a new york times article or something and just take that as the fact really dig in and see what the facts are about this sometimes the the take by the media or the opinions they give are really misleading so read the news see what's happening to these companies see what decisions the chinese communist party is making determine how it's going to affect alibaba and really see if it hurts the intrinsic value of the company the other big news in china around alibaba was that the ccp were going to dismantle ant group of course alibaba owned a one-third stake in amp group so it seems pretty concerning but again we need to get back to assessing the fact does it hurt the intrinsic value the actual value of alibaba sure it's going to hurt the share price the market gap is going to drop and we've seen that happen over and over again but does it really affect the intrinsic value so best case scenario and group around a year or two ago before the original crackdowns was a 300 billion dollar company that was some analysts expectations when they were going to ipo so the one-third stake for alibaba was worth a hundred billion dollars and fair enough that is around 15 or so of the business so that is a significant part of the business now the original crackdowns by the ccp this is going back a year and a half nearly two years now really did hurt and group they decided that ant group would have to particularly their credit lending business would have to hold 30 percent of their loans on their balance sheet so it made it very difficult to loan out to chinese consumers and take advantage of the rep data that they have then there were lots of other changes that they had to make like the type of business they were registered as and the ipo was pretty much taken away from them and the value from analysts went from 300 billion down to 100 billion so the one third stake in this case is worth around 30 to 40 billion dollars depending how you were valuing ant group at the time so that really did hurt the intrinsic value of the business but again that was going back a year or two now that's not the current share price drop we've seen it down 50 from its all-time highs that all-time high was after this i guess crackdown on the and group and group financial and their different operations so the share price was still much higher knowing that the value for ant group was much less so more recently we could see that and groups take to be worth maybe five percent of the intrinsic value of alibaba and this crackdown more recently to kind of split up the credit lending business of ant group didn't remove that five percent it kind of just hurt a little bit and now maybe it's three or four percent so does that really justify some of the price drops we are seeing in china right now does maybe one to two percent being take away from the intrinsic value of the business does that justify this price drop in my opinion it certainly doesn't so really that's just the main takeaway i wanted to give here is charlie munger wrong is manish prabrai wrong am i wrong in my investment investment in alibaba it's really hard to tell right now but what we see in the media and what we see on the share price certainly doesn't reflect upon whether myself or charlie is right or wrong we certainly don't know that but what we do know so far from recent recent earning reports and everything else is that the intrinsic value of this business is still growing this is a fast growing very powerful business with an incredible mode and incredible competitive advantage and they should be able to generate sustainable returns on their investments for a very long time they have all these bonus business thrown on like the cloud business that could become extremely profitable it's just reached a point of profitability over the past year or so um not completely that's on an adjusted ebitda range but still it's approaching that profitability range and it's going to become a more valuable part of the business and group doesn't matter too much it's just another add-on so depending what happens in the future that's probably going to become more valuable so it's a nice add-on and then you have the e-commerce business that is an absolute beast that's the main part of this business and in my opinion it's extremely undervalued but more importantly it's still growing why this share price is going down significantly 50 in just six months or so the business is still growing so of course my opinion is biased you definitely need to go out and do your own research and make your own opinions on this just like you can't trust what the media is saying and you need to go and do your own research and form your own opinions take their information form your own opinions do the same with what i'm saying now but my opinion is charlie munger is certainly not wrong he probably got very unlucky with the timing of this investment but we know he is a very long-term shareholder and the intrinsic value of the business since he purchased is still growing so arguably the share price should be higher from when he bought but we know that the market doesn't actually always represent the intrinsic value of the business so we don't know how much these chinese government crackdowns are going to impact alibaba we know it's certainly a bad thing we know it's certainly hurting the business but is it really affecting it to the extent we're seeing in the share price now with all that said make sure you do not take this as financial advice there is a lot of risk in investing in china i certainly am taking on more risk than i probably would like and probably that i like to promote and teach to others but again i am relatively young i still am able to generate a large amount of savings compared to the size of my investment portfolio so i can afford to take a little bit more risk to try and generate higher returns but investing in china is certainly a risky thing to do and you need to wait accordingly i don't think it's worth having a very large portion of your portfolio in china unless you really understand that market probably unless you've lived there for a very significant time significant time period and understand the government and the regulations that are happening which i think most people watching this video certainly don't have then you need to wait accordingly so maybe only a small portion even if you have very high conviction on a stock like alibaba or tencent but that's it for this video guys i hope you enjoyed as always leave a comment down below let me know what you think do you think charlie's wrong do you think i'm making a mistake with my investment in alibaba where do you think this business is going to be in 10 years time if you enjoyed smash that like button and subscribe to the channel for more videos like this [Music] you

Channel: Frank Taber

Views: 15,977

Rating: 4.8849559 out of 5

Keywords: Alibaba Stock, BABA stock, Charlie Munger

Id: 2vA9sgQ92e0

Length: 15min 3sec (903 seconds)

Published: Sun Sep 26 2021