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Why You Shouldn't Listen to Charlie Munger

His disastrous sale of Alibaba stock at the bottom shows a major flaw

Yahoo FinanceCharlie Munger, the former Chairman ofThe Daily Journal (DJCO) not only bought more of a Chinese stock calledAlibaba ADRs(BABA) in January buttouted it at DJCO’s annual meetingon Feb. 16.

Munger, a former lawyer and hedge fund manager, is also Warren Buffett’s right-hand man at Berkshire Hathaway (BRK.A)

Now comes news from a 13-F filing that sometime in Q1 The Daily Journal eliminated over half of its position in Alibaba. It now owns just 300,000 ADRs vs. 602,060 at the end of the year.

Many people followed Munger into this risky Chinese investment, which has declined in the last year. You can see this in the chart below.

Google Finance — BABA

In fact, Munger actually increased the company’s investment in Q4 when it bought 300,000 ADRs, according to Barron’s.

As a result of this losing, yet touted investment by Munger, DJCO has tanked in the last six months as Munger literally doubled down.

Google Finance — DJCO

What is the lesson here?

Don’t Ever Listen to Munger Again

This 98-year-old man led many people down a rabbit hole. YouTube is full of many people saying they followed him into this risky stock. Now they don’t know what to make of the situation.

Munger has now resigned as the Chairman of The Daily Journal. As he should. This is a disgrace. Even though he is still a director, it looks like a face-saving move.

In fact, one wonders whether the SEC will inquire into why the company was touting the stock and then suddenly selling it during the same quarter. This about-face raises a lot of questions about the ethics here.

Whatever Munger said about both China and Alibaba in the past is now highly suspect and should be discounted, if not completely written off. Munger previously praised China and talked highly about the cheapness of Alibaba stock, despite all the risks of investing in China.

What is the Company Actually Doing Here?

Munger resigned without comment about why the company cut its exposure so drastically, so suddenly and so without explanation.

Of course, far be it from Munger to actually admit he made a huge mistake. I suspect he is too proud to admit making a massive error in judgment.

In fact, some are speculating that since the 13-F filings do not require foreign holdings to be listed, it is possible the ADRs were converted into ordinary shares listed on the Hong Kong stock market.

Even if that is the case, it seems shareholders should be given notice. It also will appear on the company’s books when it files quarterly statements for Q1.

I don’t think that happened. I think the new Chairman saw that this investment was risky, despite all the touting by Munger.

Bottom Line: Stay away from listening to Charlie Munger

Munger’s advice is at best intellectually dishonest, and I personally believe he should not be listened to in terms of investment advice and ethics. He knows others followed him into this risky stock. Yet at the same time (i.e., during the same quarter) he was touting it, the company sold half of its position.

Will the company be selling the other half? No one knows. Even if there is an explanation, why would you believe anything said from here on in? In fact, I personally believe he should also resign from the Vice Chairmanship of Berkshire Hathaway.

I have been critical of Warren Buffett for selling his position in airline stocks, after touting them, right at the bottom during the height of the Covid-19 crisis. Here is that article:

Has Warren Buffett Lost His Groove?

He sold airline stocks at the bottom and BRKA stock lost money last year

This appears to be a very similar behavior. How is Munger going to look if he eventually sold at the bottom in BABA stock?