Other than BABA’s price action, how has the news “been unwittingly bad”?
The deteriorating geopolitical and trade situation, just as a general background.
But I was thinking more of:
The political situation, with considerable new information reducing the notion that owners of anything have any security of ownership, level playing field, judicial recourse, etc.
And specific fresh hits to the firm’s assets, for example the repeated recent additional hits to Ant.
(forced divestiture of the credit database, forced partial sale to a government entity who has now refused, etc)
Unremittingly (without cease) bad, not unwittingly bad. It’s not by accident.
It’ll probably be the the buy of the decade if we look back im 10 years. A bit like the Amazon chart now IMO. That’s what Charlie sees I reckon. I think he’s right.
So do I.
I just think the emphasis is on the word “probably”.
Most things with probably-good outcomes still have lots of not-too-bad outcomes covering the rest of the bases.
Not here.
This one has a big fat lump in the left tail in the distribution of outcomes.
I don’t claim to know the size of the probability of very bad outcomes, but it’s painfully obvious that it’s there and far higher than for the sort of things Berkshire invests in.
Mr Munger is, in effect by his actions, denying it’s existence. He’s probably right that those really bad outcomes won’t come to pass.
But only probably.
I suppose it’s an interesting question as to whether he realizes the obvious risks are there and he’s willing to take them, or denying they exist.
If you got a great price offered to you, would you buy a fantastic cottage on a pretty lake in Donbas?
If you got a great price offered to you, would you buy a fantastic cottage on a pretty lake in Donbas?
If you told me there was a 5% chance that I lose the cottage with no compensation, and a 95% chance that I triple my money in 5 years, and if it cost me 1-20% of my net assets, then yes, I would happily buy it.
I’m surprised nobody mentioned the other alternative: buying Softbank stock.
A bull would consider it like a closed end fund trading at a really big discount to NAV.
Deciding whether it’s well run or not is a matter of taste.
Past results have been good.
but also… https://xkcd.com/1827/
Perversely having a look at their holdings on Tikr, I’d only be interested in Softbank stock if they held onto BABA. A bit like a Tencent play with Prosus…
I’m surprised nobody mentioned the other alternative: buying Softbank stock. A bull would consider it like a closed end fund trading at a really big discount to NAV.
Softbank’s value consists mainly in its ownership of Alibaba; I saw today somewhere, although I can’t find it now.
Softbank is based in Japan, not China, but holding Alibaba through Softbank (until Softbank sells it) obviously does nothing to get rid of that risk. However, it might be a cheaper way to get Alibaba exposure, if you knew (a) what proportion of Softbank that Alibaba stake comprises and (b) how much would be owing from capital gains taxes (the cost basis of the Alibaba shares is close to zero).
It’s such a well-known situation, you would think that any discrepancy in the prices of the 2 should have been arbitraged away already, but you never know. Has anyone done the calculation?
" I’m surprised nobody mentioned the other alternative: buying Softbank stock. A bull would consider it like a closed end fund trading at a really big discount to NAV."
Begins referencing their BABA holding at 22:27 min:
At the peak, BABA accounted for 60% of Softbank NAV. Now (12/31/2021) down to 24% of NAV
BABA’s share price was the biggest driver of their NAV loss in the quarter.
US and Japan investments have being going well. China…not so much.
It’s such a well-known situation, you would think that any discrepancy in the prices of the 2 should have been arbitraged away already, but you never know. Has anyone done the calculation?
The sum of the parts valuation for Softbank have generally been WAY below 1 for a long time, no matter who is calculating it.
If you’re at all bullish on BABA, that discount is even bigger, since the price fall-off is probably bigger than the value drop.
Some fraction of the investment community thinks Softbank is very badly run, somewhere between no controls and loose cannon.
Don’t think the gap will necessarily be arbitraged away, no matter how big or obvious it becomes.
There are just too many examples in the past of huge gaps. Free $100 bills lying on the ground, if you will.
Yahoo and their holding in Alibaba.
But the grand-daddy example is the Palm/3com situation.
From an academic paper on that one: "After the carve-out of Palm and IPO of 5% of its shares, 3Com still owned the remaining 95% of Palm. Extrapolating the market valuation of the traded Palm shares to the remaining 95% of Palm, the total stock market value of 3Com was much lower than 3Com’s holdings of Palm. Can a parent really be worth less than one of its subsidiaries, especially when the subsidiary is about to be spun off?"
Worth? Probably not. Priced? Sure.
The fun part of that story: "At the end of 1999, 3Com began the process of spinning off its wholly-owned subsidiary Palm, Inc., and on March 2, 2000 about 23 million Palm shares (about 5% of the company) were offered to the public in an initial public offering (IPO). By the end of the first day of trading, Palm’s closing share price was about $95, giving it a market value of $54 billion, while 3Com’s closing price was about $81, making its market value $28 billion…"
I think the number one reason Buffett wouldn’t buy BABA is politics. Given the current state of the US and China relation, Buffett would attract lots of attacks if he did it. Buffett also has a reputation of “America First” in term of investment and doing that just doesn’t fit the current political climate.
Munger who? Pardon me, I don’t think WEB actually consults or even runs by any of his investment decisions with Munger of late. The board is indulging in lots of romantic notions that is not supported by facts I could see.
Charlie likes the risk/reward. Can he convince Warren of the same?
I don’t think he can. When in doubt check Wells Fargo share price.
Someone like me, who is reckless, and has a long relationship with misery and loss, is not adding to my initial BABA position. You think WEB is going to?
After I heard his views on China, which is diabolically opposite to mine, I doubt Charlie’s judgement. WEB is more worried about his legacy than swinging at BABA. He has nothing to prove. He has the greatest success in Apple investment, why spoil your swan song?
At first glance, it basically looks like a pretty straightforward conglomerate of stakes in BABA, ARM, and telecom companies. And on top of that you have the worlds largest technology VC fund.
Do consider that it’s 48% of what the boss says it’s worth.
A very large fraction of those private assets at mark-to-marketing numbers, not market prices.
On the other hand, if you think Alibaba is worth a lot more than the Dec quote used in that valuation, that’s a bigger discount for Softbank than it seems.
In the same sense that buying Berkshire is a cheap way to get Apple shares compared to buying them on the market,
some people might think buying Softbank is a cheap way to get Alibaba shares.
Which I suppose is true, if you are very OK with the other assets and reasonably OK with their valuations.