Is Munger "On Tilt"?

[wabuffo]

doubled DJCO's position size in BABA w/ another 300k share purchase during Q4, 2021.

 

per new 13F-HR filed.

 

Bill

 

 

[Parsad]

36 minutes ago, wabuffo said:

doubled DJCO's position size in BABA w/ another 300k share purchase during Q4, 2021.

 

per new 13F-HR filed.

 

Bill

 

 

 

60% drop for a company that is still making money hand over fist and probably will grow at better than 15% annualized for the next decade...wildcard is the CCP.  We shall see if the old man still has his mojo or if he's used his last ball as you suggest.  Cheers!

[Peregrine]

Well, he pretty clearly has very strong conviction. Whether he's right or not is a different story.

[Longnose]

[boilermaker75]

 

My coffee cup

Edited January 4, 2022 by boilermaker75

[tnp20]

I have always read about the punch cards system Buffett and Munger use and have read metaphorical stories about it....

 

This is the first time I am seeing punch card (with 20 slots) being used "live".....I was too young to appreciate the previous ticket punches....but this one is fresh as it gets and with total conviction despite CCP risk.

 

 

[Blugolds]

Wonder what his CB is now? What would Charlie do if he took a position in a name and share price was cut in half 6 months after…he doesn’t hate the name but conviction has changed a bit…does he exit the position and take the loss, sit tight and do nothing ( we know he is good at that) , or buy more to lower his cost basis so its easier to exit without such a big loss? 

 

My thinking is that if he thought BABA was a loser he would just take the loss and exit, but that was a pretty big loss, so just wondering if anyone has entertained the idea that there might be a slightly different strategy here? Is there any other historical parallels to the BABA situation that can show what he might do? 

 

[yesman182]

What I find interesting given Mungers apparent conviction on BABA is that WEB hasn’t purchased any (that we know of). I am not surprised that WEB doesn’t want to purchase BABA. But when your parter of 50 years has a strong conviction in a stock and your are sitting on 150B cash and you are not willing to buy, I just wonder how that conversation went. Could Charlie buy this for Berkshire if he wanted? WEB makes it sound like BYD was all Charlie’s idea, so did Charlie need WEBs permission for BYD? 

[Spekulatius]

3 hours ago, Parsad said:

 

60% drop for a company that is still making money hand over fist and probably will grow at better than 15% annualized for the next decade...wildcard is the CCP.  We shall see if the old man still has his mojo or if he's used his last ball as you suggest.  Cheers!

The other wildcard is if the numbers that BABA publishes really reflect economic reality. BABA balance sheet and income statement are a black box and it’s really hard to get confidence in their published financials. We had the discussion based on @LearningMachine inquiries about GMV of their platforms and couldn’t even get much confidence in this number  as it seems quite large no matter how you slice it.

 

So, I wonder what edge Munger really had compared to use dummies and that would be a question I would ask if I had one shot. If the answer is “behavioral edge” I would just move on personally.

 

I think Tencent qualitatively seems like a much better buy. I have more confidence in Pony Ma (strikes me as more humble and just straight shooter) and the incomes and cash flow statement seem much clearer and more credible quite frankly. But that’s just me.

 

FWIW, I think BYD was Mungers idea, but I think they both met the owners and I am guessing Buffett saw something too, so he agreed to take a position. I don’t think Buffett has the same confidence in BABA, it’s probably just went in his too hard pile. That’s just a guess of course, like anything else I wrote.

[Thrifty3000]

Munger in 2019:

 

[Spekulatius]

Well, if this was a boxing game,  the first two rounds went clearly to the other side.

 

 

I had this thought before this BABA episode and think there is a good chance that Munger would have blown himself up, if he hadn’t met Buffett and basically let him manage the bulk of his money.

His track record in his own partnership was very volatile and he used margin as well. Roll the dices often  enough and chances are high that you get a couple of sixes coming up at once and you are done.

 

Buffett on the other hand is far more risk averse than Munger and that’s what you need to be, if you want to survive for 7 decades. Risk management is far more important than returns in the very long run.

[formthirteen]

2 hours ago, Spekulatius said:

Well, if this was a boxing game,  the first two rounds went clearly to the other side.

 

 

 

I had this thought before this BABA episode and think there is a good chance that Munger would have blown himself up, if he hadn’t met Buffett and basically let him manage the bulk of his money.

His track record in his own partnership was very volatile and he used margin as well. Roll the dices often  enough and chances are high that you get a couple of sixes coming up at once and you are done.

 

Buffett on the other hand is far more risk averse than Munger and that’s what you need to be, if you want to survive for 7 decades. Risk management is far more important than returns in the very long run.

 

Even if he had blown himself and the people around him up, he's smart enough to make it back and around the moon again. Elon is a similar type of guy, seems quite smart.

[Parsad]

2 hours ago, Spekulatius said:

Well, if this was a boxing game,  the first two rounds went clearly to the other side.

 

 

 

I had this thought before this BABA episode and think there is a good chance that Munger would have blown himself up, if he hadn’t met Buffett and basically let him manage the bulk of his money.

His track record in his own partnership was very volatile and he used margin as well. Roll the dices often  enough and chances are high that you get a couple of sixes coming up at once and you are done.

 

Buffett on the other hand is far more risk averse than Munger and that’s what you need to be, if you want to survive for 7 decades. Risk management is far more important than returns in the very long run.

 

There's a difference. 

 

Munger simply wanted to be financially independent, so that he could do the things he enjoys.  Buffett wanted to be financially independent, but also wanted to be the richest man on the planet. 

 

For Munger, he wanted to get there quickly if he could.  For Buffett, the game was long and was about accumulation. 

 

Munger loves the Daily Journal, that's why he's managing the capital...so that it will go on forever.  Otherwise he wouldn't bother.  Cheers!

[Spekulatius]

6 minutes ago, Parsad said:

 

There's a difference. 

 

Munger simply wanted to be financially independent, so that he could do the things he enjoys.  Buffett wanted to be financially independent, but also wanted to be the richest man on the planet. 

 

For Munger, he wanted to get there quickly if he could.  For Buffett, the game was long and was about accumulation. 

 

Munger loves the Daily Journal, that's why he's managing the capital...so that it will go on forever.  Otherwise he wouldn't bother.  Cheers!

I think this is a good take. At least it makes sense to me.

 

BRK is certainly not optimized for returns, it is optimized for durability and resilience. I think this is important to understand as a shareholder.

Edited January 5, 2022 by Spekulatius

[Xerxes]

We are overthinking this:

 

For all we know the Daily Journal Alibaba buys could be closing of his very successful shorts on the name as he rode it down from $317 to where it is today. The reason they appear as long position, is because the shorts were initiated against HK 9988, so you don't see it as they are not need to be disclosed by SEC, but in grand scheme of things they are offsetting each other, with the net between them left as profit.

 

On a more positive side, this episode got to be ammunition for finance/investment podcast re-hashing it over and over again.

[wabuffo]

could be closing of his very successful shorts on the name as he rode it down from $317 to where it is today. The reason they appear as long position, is because the shorts were initiated against HK 9988, so you don't see it as they are not need to be disclosed by SEC, but in grand scheme of things they are offsetting each other, with the net between them left as profit.

 

Hmm - I see disclosures of losses from the BABA long, and gains from holding three banks + BYD but no mention of these "gains" in MTM from shorts (even though they would be material to DJCO -- greater than $20m as at 9/30/21 10-K). 

 

It's also curious that the FMV of the total portfolio matches the exact closing MTMs of all six stocks (incl BABA) -- leaving no room for a short position MTM.

 

Here's my working theory.  Munger bought BABA and has suffered large M-T-M losses to-date on all three buys.  The investment may work out, or it may not.   Such is life.

 

Bill

Edited January 5, 2022 by wabuffo

[alpha]

21 hours ago, yesman182 said:

What I find interesting given Mungers apparent conviction on BABA is that WEB hasn’t purchased any (that we know of). I am not surprised that WEB doesn’t want to purchase BABA. But when your parter of 50 years has a strong conviction in a stock and your are sitting on 150B cash and you are not willing to buy, I just wonder how that conversation went. Could Charlie buy this for Berkshire if he wanted? WEB makes it sound like BYD was all Charlie’s idea, so did Charlie need WEBs permission for BYD? 

 

Even if WEB sees value there may well be political/regulatory issues preventing WEB/BRK from piling into BABA.

[ValueArb]

On 1/4/2022 at 1:36 PM, Parsad said:

 

60% drop for a company that is still making money hand over fist and probably will grow at better than 15% annualized for the next decade...wildcard is the CCP.  We shall see if the old man still has his mojo or if he's used his last ball as you suggest.  Cheers!

 

Wild card is BABA's collapsing margins.

 

[Aurel]

On 1/5/2022 at 7:16 AM, Thrifty3000 said:

Munger in 2019:

 

CTM is bullish on China for a long time. He finds Li Lu and it worked out well. He admires Lee Kuan Yew and sees a lot of his leading style now in China. I think he is right, that China did a lot for humanity with their one-child-policy and so on. They got so many people out of poverty so fast. But the West only talks about human right abuses and some want to boycott the Olympic games for example.

 

I think he was really patience “to shoot an elephant” over there. And now the time is right. (for Munger)

 

I do have a hard time to believe, that Munger thinks about margin-compression all day long.

 

 

Edited January 6, 2022 by Aurel

[Thrifty3000]

Here are some charts of Google’s margins. If Google’s price had dropped 50% in the last year I bet we’d be hearing a lot more about Google’s margins declining to zero.
 

 

[brianr27]

Clearly Munger does not view the CCP and regulations as risks. He's on record supporting the CCP's proactive interventions and believes that they are benefincial in the longer term. The US tends to allow problems to grow unconstrained for too long (e.g. dotcom, GFC, crypto) and the longer you wait the more costly they are to fix.

 

In a recent interview, Ray Dalio placed the odds of a civil war in the US at 30% in the next decade. That may sound far fetched but it's not clear to me that the US is going to anymore politically stable than China in the coming decade.

[ERICOPOLY]

On 1/6/2022 at 12:36 PM, brianr27 said:

In a recent interview, Ray Dalio placed the odds of a civil war in the US at 30% in the next decade. That may sound far fetched but it's not clear to me that the US is going to anymore politically stable than China in the coming decade.

 

That civil war thing is kinda mainstream thinking:  https://www.npr.org/2022/01/11/1071082955/imagine-another-american-civil-war-but-this-time-in-every-state

[Spekulatius]

MELI is another growth brother darling with deteriorating margins:

 

They went into many adjacent business (logistics, payments) with lower margins than there core market places business. Bulls are pointing out that their P/S has declined recently but I guess it should decline  when operating margins go from ~30% to ~0%.

 

This margin decline isn't necessary bad but on needs to look under hood. Bulls are using the revenue increases to justify valuations but not all revenues are the same.

[DooDiligence]

 

Found via link on Reddit

 

www.reddit.com/r/brkb/comments/s1yx0t/2022_daily_journal_corporation_mungers_letter_to/?utm_source=share&utm_medium=web2x&context=3

 

[Thrifty3000]

One thing that actually does strike me as a bit "on tilt" for Munger is why he broke from he and WEB's usual approach to betting on an oversold industry (with an unclear winner), which is to buy a basket.

 

It's a waste of time to speculate on the reason, but I can only assume that he has had Baba set in his mind as a long term winner from his prior conversations with Li. And, he probably has overwhelmingly positive China bias after his trips to China and his heroic BYD experience. Munger has a healthy amount of hubris - to put it mildly - so I'd honestly be surprised if he has read more than a handful of pages of the annual reports of any of the Daily Journal's portfolio holdings in recent years.

Edited January 14, 2022 by Thrifty3000