How to Buy the Dip Like Charlie Munger (and Why It Works)
He didn’t buy the dip—he bought the margin of safety.
Charlie Munger shocked investors when he doubled Daily Journal's stake in Alibaba—adding roughly 300,000 shares as prices plummeted.
Many on social media questioned, “Has Charlie lost it?” Yet, for those familiar with Munger’s disciplined investment philosophy, this move wasn’t reckless; it was entirely predictable.
This post is based on one of the most popular episodes of the CMQ Investing podcast. It was recorded and published in January 2022, but the wisdom is timeless. It’s also particularly relevant today, as the market continues to tank.
Why Munger Bought Alibaba Again
Munger evaluates investments using four clear principles:
Circle of Competence: He invests only in businesses he deeply understands.
Durable Competitive Advantage: He picks companies with strong, enduring market positions.
Quality Management: Leadership must show integrity and exceptional talent.
Margin of Safety: Even great businesses must be purchased at reasonable prices.
Munger’s initial average Alibaba share price was around $190. When the stock dropped further, he lowered his average cost to approximately $155, increasing his ownership stake and margin of safety.
Why Most Investors Misunderstand “Buying the Dip”
Unlike the reckless “buy the dip” attitude popularized by meme stocks, Munger’s approach is disciplined and valuation-driven.
He didn’t buy Alibaba simply because its price was lower; he bought more because the underlying fundamentals remained strong while his margin of safety widened.
Lessons from Munger’s Move
Charlie Munger’s superpower is patience and an extraordinary tolerance for short-term volatility. He rarely invests, but when a high-conviction opportunity arises, he bets heavily.
Does this mean you should follow Munger blindly? Absolutely not.
Instead, see this as a masterclass in rational investing: If you truly understand a company and its long-term potential remains intact, buying more as prices fall can be a rational decision.
👉 Bottom line: Munger’s Alibaba decision isn’t about timing the market—it's about knowing intrinsic value and having the discipline to act rationally under volatility.
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That’s what makes the current situation so tricky. Are the fundamentals the same under tariffs? Are there tariffs even for real, or just a bargaining chip? I’m sure the fundamentals will remain for some businesses, but others will change drastically. I’d be curious to hear your thinking on this. What industries do you think are fundamentally the same under tariffs and which will change dramatically?