How to Buy the Dip Like Charlie Munger
Charlie Munger doubling his position in Alibaba inspired a recent episode of Compound Money Quietly. It’s our most downloaded episode so far this year.
According to a conversation about this episode with paid members:
…maybe the best episode to date.
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I just finished writing a brief guide to buying the dip like Charlie Munger…
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Charlie Munger’s approach to investing, as illustrated below, has not changed in decades.
You only get a few great opportunities
You only get a few opportunities, and you have to grab them aggressively when they come because even in the most favored life, they're really rare.
For each of us, really good investment opportunities aren't going to come along too often and won't last too long, so you've got to be ready to act and have a prepared mind.
Bet heavily when the odds are in your favor
A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind, loving diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past.
And always have a margin of safety
That margin of safety concept boils down to getting more value than you’re paying. And that value can exist in a lot of different forms.
The investment game always involves considering both quality and price. And the trick is to get more quality than you’re paying for in the price. It’s just that simple.
Use this 4-step investing checklist.
The only time to buy the dip
If you did all that, and the stock price falls…
And now the stock price is less than the average price you paid per share…
And assuming the business’ competitive advantage remains intact…
And assuming you still have faith in the management…
Then, and only then…
Buy the dip!
When Charlie Munger did this in Q4 2021, he benefited in two clear ways.
Increased his margin of safety (reducing risk)
Increased his ownership stake in a business he believes has good long-term prospects
It’s a win-win.
The Daily Journal now owns more of $BABA, but at a lower average cost per share. if Munger’s original thesis about Alibaba’s long-term future holds up, then there’s more potential upside.
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