Charlie Munger Buys More Alibaba: A Price Chart Analysis

When Charlie Munger adds to an existing position in an equities portfolio, it’s probably a good idea to pay attention.

He and Warren Buffett run that legendary Berkshire Hathaway
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fund which has done well over the long term. They’re value investors and have a decent record of avoiding fads, story stocks and wild-eyed speculations. They drink too much Coca Cola
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and eat too much ice cream, but that’s okay, they’re old and live in Omaha.

Munger’s “Daily Journal Corp
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” just picked up a substantial amount of the Chinese internet company Alibaba, adding to the good amount he already owned. He’s chairman of Daily Journal and the new position doubles the number of shares already in the firm’s portfolio.

Many Wall Street hot shots are afraid of owning Chinese stocks right now because it’s hard to say what the Beijing government might have in mind about markets it oversees. On the one hand, sure, Charlie Munger is one of the smartest in the business. On the other hand, it is possible he’s missing an obvious problem?

Alibaba’s price-earnings ratio fits in with a value investor approach: at just 16.85, it’s much lower than the Shiller p/e for the S&P 500 which now sits at 40. The company trades a just barely over 2 times book value. Shareholder equity greatly exceeds long-term debt. Value-oriented analysts love] this kind of stuff.

Alibaba’s earnings are off by 2.2% this year but the past 5-year EPS growth rate is 14.40%. The company does not pay a dividend.

The daily price chart for Alibaba looks like this:

Typically, straight down is not a good look but, sometimes, that’s where you find the good value stocks. Alibaba is priced below both its 50-day moving average (the blue line) and its 200-day moving average (the red line). Does it have the strength to fill that mid-November gap down?

Here’s how the weekly price chart for Alibaba looks:

The recent drop in price goes past the late 2018 support levels. The 50-week moving average is crossing below the 200-week moving average. That 200-week moving average no longer trends upward. From the standpoint of basic price chart analysis, this is not a good look.

The monthly price chart for Alibaba looks like this:

From late 2020 to the present, those long red bars signify lots and lots of selling each month. Alibaba’s dropped below its 50-month moving average, not what you want to see if you’re a long-term investor who bought it a few years ago. One good thing that can be said: the stock remains well above the 2015/2016 lows.

It’s hard to dismiss Charlie Munger’s investment acumen. Investors considering Alibaba as a possible value might want to see the stock price just goes sideways for awhile instead of just down.

Not investment advice. For educational purposes only. Always consult with a registered investment advisor before making any decisions.