In this episode I cover the news that Charlie Munger (as part of the Daily Journal’s holdings) has bought Alibaba. I share my reaction to his purchase, along with my initial thoughts on Alibaba.
Based on Charlie’s purchase, I did clone him, and made a 5% bet on Alibaba in the After Dinner Investor portfolio. Now, the question is if I should increase the Alibaba investment to 10% or 15% of the portfolio. To help make this decision, my next assignment for the Alibaba project will be to answer the following five questions:
1. Why did Charlie Munger buy Alibaba? To answer this, I will focus on both the business and the price.
2. Is Alibaba a wonderful business? How strong is the moat?
3. If Alibaba is a wonderful business, is the current price over-valued, fair, or cheap? Unless the price is egregiously over-valued, I will likely continue to buy Alibaba personally, and the answer to how fully valued Alibaba’s price is will influence how much I buy personally and also if I increase the weighting in the ADI portfolio.
4. Does Alibaba have a long runway to continue growing? Does Alibaba benefit from a growing middle class in China? And how strongly is China’s middle class still growing?
5. And I will also check myself. Was I able to answer these questions? Or were they too hard and out of my circle of competence?
In part two of the Alibaba episode, I will share my answers to these five questions, and I will make a decision on whether I’ll be holding Alibaba or buying more.