Thursday, January 6, 2022
Volume 3, Issue 2
“If you’re not willing to react with equanimity to a market price decline of fifty percent two or three times a century, you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get compared to the people who do have the temperament, who can be more philosophical about these market fluctuations.”
— Charlie Munger
Munger Doubles Down on Alibaba
Charlie Munger nearly doubled The Daily Journal’s investment in Alibaba stock during the fourth quarter according to a SEC disclosure filed on January 4. As we can see from the summary information on Daily Journal’s investment compiled by dataroma.com, the Alibaba stake was worth $71.5 million as of December 31 after 300,000 shares were purchased during the quarter.
The Daily Journal Corporation publishes several niche market newspapers primarily in California and other western states. In 1999, the company began its expansion into case management software designed for court systems. During the financial crisis, the newspaper business had exceptionally strong advertising revenues due to legally required notices related to housing foreclosures.
Mr. Munger initially let the cash from the windfall build up on the balance sheet. He later decided to put the funds to more productive uses by investing in stocks. In 2011, I wrote about the Daily Journal’s foray into the stock market and I followed up with another article in 2016.
Longtime followers of Mr. Munger were not particularly surprised by Daily Journal’s investment in Alibaba given his long association with Li Lu and prior investments in BYD, a Chinese automaker. The fact that Alibaba stock declined after his initial purchases in the first quarter led to speculation that further purchases would occur.
Some prominent investors consider China to be uninvestable due to a lack of transparency and political risks. Clearly Mr. Munger is not among the skeptics, and he has made a large bet based on his convictions.
Will Alibaba also appear in Berkshire Hathaway’s portfolio when its 13F report comes out next month? It is almost certain that Warren Buffett and Charlie Munger have discussed Alibaba. However, it is not clear that Warren Buffett is comfortable with the risks associated with China in general or Alibaba specifically. So, it will be interesting to see if he was persuaded to start a position in the fourth quarter.
The video below is an excerpt from the 2021 Berkshire Hathaway annual meeting which sheds some light on Charlie Munger’s thinking regarding China’s economy:
In Elizabeth Holmes Trial, U.S. Gave Patients a Small Stage by Christopher Weaver and Heather Somerville, January 4, 2022. Elizabeth Holmes was found guilty on four of eleven charges brought against her and could face decades in prison. However, her convictions were related to financial fraud, and she was acquitted of charges of fraud committed directly against patients. Prosecutors clearly thought that the financial aspect of the case was stronger and only three out of the twenty-nine prosecution witnesses were patients. While this has upset the affected patients, it is perhaps worth remembering that Al Capone was ultimately sent to prison for tax evasion rather than crimes against individuals committed during his career as a mobster. As an aside, it seems unbelievable that at least one early supporter of Theranos continues to support Ms. Holmes even after her conviction. (WSJ)
Focus on the Process by Jacob McDonough, January 4, 2022. A new investment manager reflects on his first seven months running a fund and underperforming the S&P 500 during that period. Obviously, such a short period of time has absolutely no analytical value when it comes to assessing an investor’s skill and McDonough correctly points out the importance of evaluating an investor’s process. Jacob McDonough is the author of Capital Allocation: The Financials of a New England Textile Mill, a recent book on Berkshire Hathaway that I reviewed in July 2020. (Substack)
2021 Annual Letter: The Score Takes Care of Itself by Brent Beshore. “At Permanent Equity, we think a lot about who we want to be. It’s always aspirational; in this life no one arrives. But if we have free will and ability, the aim matters. How we spend our days is how we spend our lives. We’re always becoming something, for better or worse. We want to be an organization of kindness, self-forgetfulness, and service. We strive to serve our sellers, leaders, employees, vendors, customers, and communities well through win-win-win deal structures, long-term thinking, and humble help. Too often, we fall short.” (Permanent Equity)
Keep Your Identity Small by Paul Graham, February 2009. It is difficult to be rational about topics that have become an integral part of their identity. I don’t think it is possible to avoid allowing certain things to pervade your identity, but Paul Graham is correct regarding the benefits of keeping such topics limited: “If people can’t think clearly about anything that has become part of their identity, then all other things being equal, the best plan is to let as few things into your identity as possible.” (PaulGraham.com)
IKEA to Raise Prices as Global Supply Costs Keep Rising by Joshua Kirby, December 31, 2021. After purchasing a home in July, it was very difficult to find furniture available for immediate delivery at any price. IKEA appeared to be just as impacted as other furniture retailers dealing with broken supply chains and surging demand. I found advertised prices at IKEA to be similar to what I saw when I last shopped for furniture several years ago, but what I wanted was not in stock. IKEA now plans to raise prices an average of nine percent but intends to lower prices if costs decline in the future. IKEA seems to follow the same low-price value strategy as Costco, Trader Joe’s, and Nebraska Furniture Mart. The accent chair I finally managed to locate at IKEA in September is now priced at $279, up from $249. (WSJ)
It’s Time to Embrace Slow Productivity by Cal Newport, January 3, 2022. I had no idea that legislation has been introduced in Congress to create a 32 hour workweek. There are obviously a lot of useless tasks that a typical office worker has to do every week and, in theory, eliminating such tasks could result in a shorter workweek. But I’m skeptical that this is really possible for the average organization or that Congress should get involved in mandating such a short work week. Even if it is possible, ambitious people are always going to work very hard, far more than 32 hours per week, especially if they are on a mission and love their work. (The New Yorker)
David Perell on the Laws of the Internet, January 4, 2022. Law #5: “The average quality of information is getting worse and worse. But the best stuff is getting better and better. Markets of abundance are simultaneously bad for the median consumer but good for intelligent ones. Avoid junk like gossip & clickbait.” (Twitter Thread)
The Changing World Order W/ Ray Dalio, January 1, 2022. Ray Dalio made some very controversial comments regarding China on November 30, characterizing the communist government as a “strict parent” when asked about people who had disappeared after running afoul of government policy. Dalio later said that his comments were misunderstood. In this podcast, Dalio discusses his recent book, Principles for Dealing with the Changing World Order, which came out on November 30 and deals with the question of how countries succeed and fail. The topic of China was discussed extensively in this nearly two-hour podcast. (We Study Billionaires)
Michael Mauboussin and Saurabh Madaan on Expectations Investing, January 4, 2022. This is a podcast of a discussion that took place in December 2021: “Saurabh and Michael explored the topic, Expectations Investing as Applied to Growth Businesses. Michael is co-author with Al Rappaport of the revised and updated edition of Expectations Investing: Reading Stock Prices for Better Returns.” (This Week in Intelligent Investing)
Amazon’s Website in 1997
What seemed to be cutting-edge technology a quarter century ago looks like the Stone Age just a quarter century later …
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