Charlie Munger doubles his Alibaba holding. Should I follow?

Charlie Munger, the billionaire investor and close associate of Warren Buffett, recently doubled his holding in Chinese e-commerce business Alibaba (NYSE: BABA). 

I should clarify that Munger bought the holding for the portfolio of Daily Journal Corporation. He is the chairman of the company and manages its extensive investment portfolio. 

As he has been buying the shares for the company rather than for his own account, I think this point is worth clarifying. In some respects, Munger is using other investors’ money as it is the group’s shareholders that ultimately own the Daily Journal’s portfolio. 

He has not said that he has bought the stock for his personal investment portfolio. Munger rarely comments on his investments, but we do know his most significant investment is Berkshire Hathaway. This holding accounts for the vast majority of his $2.4bn net worth. 

Still, after doubling the size of the Alibaba position in the Daily Journal’s portfolio, it is now the third-largest US equity position. I should also note that in the past 12 months, Munger has accumulated this position from scratch. In around a year, he spent $70m of the Daily Journal’s cash building the holding. 

Charlie Munger’s investments 

Considering Munger’s reputation and success as an investor, I like to keep an eye on his investments. Some could be a good fit for my portfolio. 

When it comes to Alibaba, I think the company has a lot of potential. Its position in the market suggests that it should be able to capitalise on the growth of the Chinese economy over the next couple of decades. Indeed, analysts expect the Chinese e-commerce market to grow at a compound annual rate of around 12% over the next five years. 

If Alibaba can ride this wave and increase its market exposure simultaneously, its sales growth could exceed this rate of expansion. The company also has a vast amount of consumer data that it can use to sell other products and services.

However, as I have noted before, I am worried about the company’s listing structure. The tug-of-war between US and Chinese regulators is also concerning. Regulatory actions could destabilise the group and ruin its growth potential. It is almost impossible to predict if regulators will move against the corporation and other listed Chinese businesses.

Index fund 

Considering these risks, I am not going to invest in the company. Nevertheless, I do own a Chinese equity market tracker fund. Alibaba is one of the key holdings in this fund. As such, I do have some exposure to the e-commerce retailer. 

So overall, while I am not following Charlie Munger into Alibaba, I am happy to have some exposure to China in my portfolio. I think the best strategy for me to do this is to use an index fund. This diversified approach should help spread the risk around individual opportunities.