Star investor Charlie Munger had a high opinion of China’s business landscape throughout his life. But how successful were Munger’s bets on BYD, Alibaba & Co. really?
• Munger was considered a friend of China investments
• Alibaba investment as “biggest mistake”
• BYD investment has more than paid off
“The Chinese economy has better future prospects for the next 20 years than almost any other major economy,” said the star investor, who died at the end of November 2023 at the age of 99, in an interview with the Acquired Podcast. Munger had already stated at the Berkshire Hathaway general meeting in May 2022 that he had invested in China because he could get much better companies there at much lower prices than in his home country, the USA. Even if he admitted in this context that geopolitical tensions of a Sino-American nature would make investing in the region more difficult.
Alibaba – An integral part of the depot since 2021
Probably the largest investment that the Daily Journal Corporation, the company that Munger headed for many years and where he held a board seat until his death, had in China was shares in the Chinese e-commerce giant Alibaba. But the investment history between Munger and Alibaba is quite mixed: In the first quarter of 2021, Munger acquired the Amazon competitor’s first stake, which rose directly to the largest positions in the company’s portfolio. The confidant of star investor Warren Buffett acquired 165,320 Alibaba shares; the position was worth $37.48 million at the time.
He increased his holding twice in the following months: first to 302,060 shares, then to 602,060 shares, which amounted to a portfolio value of 71.519 million US dollars.
But Munger could not ignore the catastrophic share price development of the Chinese internet company: in the first quarter of the following year he sold around half of his Alibaba shares, leaving 300,000 Alibaba shares in the holding’s portfolio until his death. Most recently, they were worth $26.022 million.
Munger was not successful with his bet on Alibaba. Although he used a cheaper share price to increase his shares than at the time of his entry, Alibaba shares have clearly fallen short of their highs since Munger’s entry. While Munger paid an average of $230 per Alibaba share for his initial investment, the value of the shares fell to around $74 at the time of his death.
Munger himself has been self-critical of his Alibaba bet in recent months: “I consider Alibaba to be one of the worst mistakes I’ve ever made. When I thought about Alibaba, I was fascinated by their position on the Chinese Internet. I “Stopped it and realized they’re still a damn retailer,” the Buffett confidant said at the Daily Journal’s last annual meeting.
BYD: Munger’s advice beneficial for Berkshire Hathaway
The Chinese BYD group was also one of Charlie Munger’s favorites. However, he did not invest here himself, but recommended that his partner Warren Buffett buy shares for his investment vehicle Berkshire Hathaway.
In 2008, the Buffett company acquired a block of shares in BYD through its subsidiary MidAmerican Energy and put $230 million on the table for it. At that time, one BYD share was worth around eight Hong Kong dollars. At the time, the company produced batteries for smartphones, but was already planning to enter the e-mobility business. This investment, which was manageable for Berkshire, proved to be a real source of returns in the following years: the Buffett company temporarily held almost 20 percent of the BYD shares; it is estimated that the star investor earned around 2,000 percent from this investment.
Since 2022, Warren Buffett has been repeatedly selling BYD share packages. He was able to make big profits: in the first transactions, BYD shares were worth an average of 205 Hong Kong dollars, and there is no sign of a downward trend in 2023 either: BYD shares have slowly but steadily increased in value on the Hong Kong stock exchange – unusual given this the fact that Buffett’s shareholding has now fallen to around eight percent and therefore numerous BYD shares have come onto the market.
Buffett – unlike Munger at Alibaba – also pulled the ripcord on BYD because of the geopolitical situation: In an interview with CNBC after the first sales, the star investor explained that he continued to consider BYD to be an “extraordinary company” that was supported by an “extraordinary person”. But he believes “we will find things we can do with the money that will make me feel better.”
Onshore Stocks by Charlie Munger
In addition to the well-known stocks Alibaba and BYD traded on US stock exchanges, Munger apparently also had exposure to Chinese onshore stocks. According to media reports, the investor will acquire shares in dietary supplements manufacturer By-health, cosmetics manufacturer Shanghai Jahwa United, conveyor belt manufacturer Zhejiang Double Arrow Rubber, supermarket operator Yonghui Superstores, meat products manufacturer Henan Shuanghui and manufacturer and marketer of traditional Chinese medicines and health products, Dong-EE- Jiao, have held. This is reported by the “South China Morning Post,” among others. Most of these stocks are considered “white horse” stocks and are leaders in their industry. In doing so, Munger apparently remained true to his investment strategy of value investing, which Warren Buffett also pursues.
Munger’s success rate in his onshore investments is not known.
Editorial team finanzen.net
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