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Collection: Charlie Munger - #140 'BYD, Hold or Sell?'



Suzanne Erica from Germany, she asked about BYD. BYD is in the Daily Journal stock portfolio with a very big paper gain. The stock has gained so much this year and last year. The stock appreciated probably way more than intrinsic value. How do you decide to hold on to a stock or sell some?


Well, that’s a very good question. BYD stock did nothing for the first five years we held it. Last year it quintupled. What happened was that BYD is very well positioned for the transfer of Chinese automobile production from gasoline-driven cars to electricity-driven cars. You can imagine it’s in a wonderful position and that excited the people in China which has its share of crazy speculators. And so, the stock went way up.

Since we admire the company and like its position, and we like its – We have a tendency to – And we pay huge taxes to a combination of the federal government and the state of California when we sell something. And on balance, we hold in certain of these position when, normally, we wouldn’t buy a new position. Practically everybody does that.

One of my smartest friends in venture capital is constantly getting huge clumps of stocks at nosebleed prices. And what he does is he sells about half of them always. That way, whatever happens, he feels smart. I don’t follow that practice but I don’t criticize it either.


Charlie, we have a similar question from a shareholder named Lee. No last name provided here but this person writes;

Dear Mr.Munger, do you believe the valuations for electric car manufacturers are in bubble territory? Both Berkshire and Li Lu own BYD Company which you spoke highly of in the past. BYD sells at nearly 200 P/E. This is cheap compared to Tesla currently valued at over 1100 times P/E and 24 times sales. I know Berkshire is a long-term owner and rarely sells securities of high-quality companies it owns in its portfolio simply because it’s overvalued. For example, Coca-Cola in the past. However, is there a price too high that the company’s future profits simply cannot justify? And since we are on the subject of selling potentially overvalued security, could you provide your systems for selling securities?


Well, I so rarely hold a company like BYD that goes to a nosebleed price that I don’t think I’ve got a system yet. And so I’m just learning as I go along. I think you can count on the fact that if we really like the company and we like the management — and that is the way we feel about BYD — we’re likely to be a little too loyal. And I don’t think we’ll change on that.


[YAPSS Takeaway]

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