The eye-watering rally followed a report by the official Xinhua news agency that China will keep the stock market stable and support overseas share listing, citing a meeting chaired by Vice Premier Liu He. The comprehensive statement also sought to resolve other woes that have plagued the market, particularly concerns over Beijingâs tech crackdown, saying efforts to ârectifyâ internet platform companies should end soon.
Chinaâs central bank and its banking and insurance regulator soon followed suit to pledge their role in ensuring a stable capital market, a coordinated move that underscores the determination of the authorities.
So far, the so called âtech crackdownâ is within the bound of reasonableness. The problem is that the authority has very little regard for market reaction, and not conducted in a professional way.
One thing is funny: SHOULD Mungerâs BABA bet in the end pay out, there is one thing we will never know:
A) Was it a âbetâ indeed and was he simply lucky that the Godâs in the party over there decided this and not another way?
B) Or was it not a bet at all and did he in fact really(!) KNEW it would come like that because he had the better brain to process information (itâs unlikely that he had different information than everybody else)?
SHOULD it pay out for him without doubt the people here that called him an âIdiotâ will say it was sheer luck and could have equally ended in a financial catastrophe - - - but in truth we can never know whether it was not a superior brain at work.
I think the âtech crackdownâ will be good for BABA. In the past few years, capital has flooded the online competition, almost all of them are losing money. BABA spent lots of money to keep up but is still profitable. Now that capital has been scared, many competitors are folding and BABA will emerge stronger.
One thing is funny: SHOULD Mungerâs BABA bet in the end pay out, there is one thing we will never know: A) Was it a âbetâ indeed and was he simply lucky that the Godâs in the party over there decided this and not another way?..
Indeed.
Just because something works out doesnât mean it was a good decision.
And just because something doesnât work out doesnât mean it was a bad one.
A good decision takes into account the limited facts available at the time, to the best advantage.
To me, itâs as obvious as the nose on your face that BABA as an investment hasnât a snowballâs
chance of passing the âRule #1â test, even though all of the most likely outcomes are good or very good.
It has a distribution of bad outcomes not so different from that of Russian Roulette.
Itâs therefore purely a matter of whether you believe in Rule #1 as an investing maxim:
donât put meaningful capital into something which has a plainly obvious chance of a big permanent loss of capital.
For small uncorrelated positions, itâs the central expectation that matters. (return on each outcome times its probability, summed).
But for big positions, Rule #1 makes sense. Skip any big investment that has an unacceptably large chance of an unacceptably bad outcome.
BABA makes an outstanding pick for a small position because of the central expected return, but not more.
I think that Mr Munger is making a very poor decision by allocating too much capital to this position given the obvious risks.
There, Iâve gone and said it.
Even though I absolutely agree that it will probably work out well for the people whose money heâs risking.
Itâs likely to work out well, so my calling it a bad move will probably look to be wrong, and people will point to how wrong I was merely because the bad wager turned out well.
ButâŚitâs still a very poor capital allocation decision.
He is not displaying a healthy uncertainty about the future.
It happens to old people, including me, though Iâm not as old as he is and likely never will be.
It has taken me many many years of hard gruelling study and experience to be as uncertain as I am, but Iâm still overconfident.
At least Iâm aware of it.
This scenario reminds me of the book Thinking in Bets by professional gambler Annie Duke. Her main point IIRC was to focus on getting the process correct and not just the outcome, because of the luck involved in many successful outcomes.
âAlibabaâs shares have declined since our initial commitment. We thought the price paid for value received was quite attractive at the time of our initial investment. Even though assets have left the Alibaba fold, long-term associations have failed (e.g., Ant Financial), and even though, for a variety of new regulatory requirements, meaningful fines levied and paid, etc., we continue to believe that our holdings in Alibaba will provide long-term rewards as they continue to grow in areas in which they have enormous first-mover advantage. In the meantime, so long as their shares remain as undervalued as we believe them to be relative to their intrinsic value on a per share basis, it is our hope that they may even have an opportunity to narrow that discount through a share repurchase program.
Alibabaâs share price decline during the year did not deter us from our investments. We believe that as commerce returns to China, retail will reclaim some lost luster. We do believe that global equity markets will likely continue to recognize that management at Alibaba continues to drive forward with renewed effort to restore past strengths and to continue to invest in new products and services. We remain watchful of developments that will undoubtedly continue to chip away at Alibabaâs prior opportunities of reinvestment options. Nonetheless,
I do believe that the ferocious levels of government intervention will likely ebb over coming quarters.â
under water