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Don’t buy shares of Alibaba… yet

Legacy Phuket Gazette

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Don’t buy shares of Alibaba… yet | The Thaiger
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PHUKET: Over the past several weeks, my phone has been ringing off the hook from clients wanting to get in on the Alibaba IPO. I told each of them the same thing: “wait”. There was a lot of hype leading up to the IPO, and it’s the same situation as when Facebook went public.

Being patient and waiting are two of the hardest things for investors to do. Legendary investor Warren Buffett likes to compare investing to being a baseball batter at the plate. Investors won’t like every pitch, but when they get one right down the middle, they swing for the fences.

That’s what they did after the Facebook IPO on May 18, 2012. There was so much hype involved and everyone wanted a piece of the company. Shares were priced at US$38 and after an initial jump to US$45, shares ended their first day of trading at US$38.23.

What happened was that as demand increased, the brokerage firms bringing Facebook public increased the number of shares in the IPO. In other words, to meet the demand, they flooded the market with shares. When there was the pop to US$45, the investors who got shares at US$38 rushed to cash in and book their profits.

After the first day, things only got worse for investors. The stock closed the next day at US$34.03 and US$31.00 on the third day of trading. After the second full week of trading, shares of Facebook closed at US$27.22 and investors had lost a combined US$40 billion.

On August 20, 2012, shares closed at US$20. This is when I got interested in shares for Facebook. The business wasn’t broken and the stock market was acting like Facebook was finished. However, as anyone who uses Facebook on a regular basis knows, this wasn’t the case. Investor expectations had been too high and Facebook was still a young company. There were bound to be hiccups along the way.

For investors who were patient and bought Facebook after the share price went down, it has been one of the best investments over the last two years. Shares are now US$79 and have more than tripled in price.

Waiting for a young company to prove itself is important and requires patience holding onto the stock. Follow Warren Buffett’s advice, wait for the pitch and then swing for the fences.

So far, Alibaba has traded just like Facebook. Shares were priced at US$68 and opened at US$92.70. After peaking at US$99.70, shares closed at US$92.14 on their first day of trading. At the time of writing, shares were trading for about US$87.

Just like Facebook, there was the pop and then shares sold off as investors who bought on the open are now panicking. They bought between US$92.70 and $99.70. As shares have dropped, they’re getting out and the lucky institutions that got stock at the IPO price of $68 are selling as well. We could easily see shares of Alibaba trade down to US$68, or below, just like Facebook did. That’s why it’s time to exercise patience and refrain from buying Alibaba just yet.

There is still a lot of news to digest and it will be difficult to have a better understanding of their business until the company issues its first quarterly earnings report as a public company. Sure, it could bolt higher like Google did early on, but even Google corrected 50 per cent in the 2008 recession, giving clients a great entry price.

Besides buying shares of Alibaba directly, investors can also buy shares of Yahoo! or Softbank. Both companies have large stakes in Alibaba and got in early. Softbank is actually Alibaba’s largest shareholder with its 32.9 per cent stake. By owning shares of Softbank, you not only get a piece of Alibaba, but you also get Softbank’s ownership of Sprint in the US and its mobile phone business in Japan.

Shares of Yahoo! are trading around US$40, yet it owns 383 million shares of Alibaba that currently account for US$34 of its US$40 share price. That makes its core business worth only US$6 a share. That’s why activist investors are now pressuring the company to boost shareholder value. If Yahoo! were broken up, it would be worth more than the US$40 it’s currently trading at.

However, if shares of Alibaba head lower, that will bring shares of Softbank and Yahoo! down as well. That’s why investors should wait before pulling the trigger on any of the three, as Alibaba will likely see more selling pressure just like Facebook did. For those interested in Alibaba, feel free to give me a call, email or Skype and we can discuss when the timing is right for all of us.

Don Freeman is president of Freeman Capital Management, an independent US Registered Investment Advisor. He has over 20 years experience and provides personal financial planning and wealth management to expatriates. Specializing in UK and US pension transfers. Call 089-970 5795 or email: freemancapital@gmail.com.

— Don Freeman

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Archiving articles from the Phuket Gazette circa 1998 - 2017. View the Phuket Gazette online archive and Digital Gazette PDF Prints.

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Governments & old media versus social media – who will win? | VIDEO

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Governments & old media versus social media – who will win? | VIDEO | The Thaiger

We look at the recent changes made by the Australian and Indian governments to except control over the world’s biggest social media platforms. India has issued strict new rules for Facebook, Twitter and other social media platforms just weeks after the Indian government attempted to pressure Twitter to take down social media accounts it deemed, well, anti social. There is now an open battle between the rise of social media platforms and the governments and ‘old’ media that have been able to maintain a certain level of control over the ‘message’ for the last century. Who will win?

The rules require any social media company to create three roles within India… a “compliance officer” who ensures they follow local laws; a “grievance officer” who addresses complaints from Indian social media users; and a “contact person” who can actually be contacted by lawyers and other aggrieved Indian parties… 24/7.

The democratisation of the news model, with social media as its catalyst, will continue to baffle traditional media and governments who used to enjoy a level of control over what stories get told. The battles of Google and Facebook, with the governments of India and Australia will be followed in plenty of other countries as well.

At the root of all discussions will be the difference between what governments THINK social media is all about and the reality about how quickly the media landscape has changed. You’ll get to read about it first, on a social media platform… probably on the screen you’re watching this news story right now.

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The social media giants in battle with ‘old’ media and world governments | VIDEO

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The social media giants in battle with ‘old’ media and world governments | VIDEO | The Thaiger

“The rules signal greater willingness by countries around the world to rein in big tech firms such as Google, Facebook and Twitter that the governments fear have become too powerful with little accountability.”

India has issued strict new rules for Facebook, Twitter and other social media platforms just weeks after the Indian government attempted to pressure Twitter to take down social media accounts it deemed, well, anti social.

The rules require any social media company to create three roles within India… a “compliance officer” who ensures they follow local laws; a “grievance officer” who addresses complaints from Indian social media users; and a “contact person” who can actually be contacted by lawyers and other aggrieved Indian parties… 24/7.

The companies are also being made to publish a compliance report each month with details about how many complaints they’ve received and the action they took.

They’ll also be required to remove ‘some’ types of content including “full or partial nudity,” any “sexual act” or “impersonations including morphed images”

The democratisation of the news model, with social media as its catalyst, will continue to baffle traditional media and governments who used to enjoy a level of control over what stories get told.

The battles of Google and Facebook, with the governments of India and Australia will be followed in plenty of other countries as well.

At the root of all discussions will be the difference between what governments THINK social media is all about and the reality about how quickly the media landscape has changed. You’ll get to read about it first, on a social media platform… probably on the screen you’re watching this news story right now.

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Never miss out on future posts by following The Thaiger.

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Business

Turbulence ahead for Thailand’s aviation industry | VIDEO

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Turbulence ahead for Thailand’s aviation industry | VIDEO | The Thaiger

When the airlines, in particular, were asking the government to put their hands in their pockets for some relief funding in August last year, it was genuinely thought that international tourists would be coming back for the high season in December and January. At the very least local tourists and expats would head back to the skies over the traditional holiday break. And surely the Chinese would be back for Chinese New Year?

As we know now, none of that happened. A resurge in cases started just south of Bangkok on December 20 last year, just before Christmas, kicking off another round of restrictions, pretty much killing off any possibility of a high season ‘bump’ for the tourist industry. Airlines slashed flights from their schedule, and hotels, which had dusted off their reception desks for the surge of tourists, shut their doors again.

Domestically, the hotel business saw 6 million room nights in the government’s latest stimulus campaign fully redeemed. But the air ticket quota of 2 million seats still has over 1.3 million seats unused. Local tourists mostly skipped flights and opted for destinations within driving distance of their homes.

As for international tourism… well that still seems months or years away, even now.

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