Connect with us

Business

Don’t buy shares of Alibaba… yet

Published

 on 

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

 

Get more from The Thaiger

Join the conversation and have your say on Thailand news published on The Thaiger.

Thaiger Talk is our new Thaiger Community where you can join the discussion on everything happening in Thailand right now.

Please note that articles are not posted to the forum instantly and can take up to 20 min before being visible. Click for more information and the Thaiger Talk Guidelines.

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

Follow Thaiger by email:

Hot News11 mins ago

Nok Air cancels Nakhon Ratchasima-Chiang Mai flight routes

Thailand15 mins ago

Airports of Thailand reports 200% increase in traffic at Suvarnabhumi Airport

Entertainment21 mins ago

The tax returns don’t lie – Shakira prepares for court battle in Barcelona

Sponsored19 hours ago

Segafredo Zanetti Coffee teamed up with Bangkok Airways and hosted “Bangkok Airways Surf Festival 2022”

Thailand41 mins ago

Thai mental health officials want psychiatric drugs listed as essential meds

Thailand46 mins ago

2 Thai knights in shining armour aid lost foreign child in Pattaya

Hot News47 mins ago

Chiang Mai’s famous giant panda turns 21 years old

Join the conversation on the Thaiger Talk forums today!
Weather1 hour ago

Category 4 Hurricane Ian hits US state of Florida’s coast

Best of1 hour ago

5 suit tailors in Bangkok that’ll make you look dapper

Weather1 hour ago

Tropical Storm Noru hits northeast Thailand, 1 dead, 2 injured

Patong2 hours ago

American tourist allegedly assaulted outside Patong bar

Thailand2 hours ago

4,000 Evacuated as Typhoon Noru hits Thailand | GMT

Tourism2 hours ago

Thai Airways promotion to Fukuoka, Japan

Hot News2 hours ago

Over 4,000 civilians evacuated in Isaan as tropical storm Noru hits

Road deaths16 hours ago

‘Drowsy’ driver crashes van, killing 3 Laotian workers

Thailand16 hours ago

Is the dream over? China walks back Belt & Road ambitions

Thailand1 year ago

Morning Top Stories Thailand | Police to end protests, Human Trafficking | September 14

Thailand2 years ago

Thailand News Today | Thai Airways in rehab, All go for Songkran | March 4

Tourism2 years ago

Phuket’s nightlife. Yes, bars and clubs are still open | VIDEO

Phuket2 years ago

Thailand News Today | Covid passport talks, Thai Airways heads to court | March 2

Tourism2 years ago

Phuket Thai food treats you need to try | VIDEO

Thailand2 years ago

Thailand News Today | Bars, pubs and restaurants ‘sort of’ back to normal | Feb 23

Tourism2 years ago

In search of Cat & Dog Cafés in Phuket Town | VIDEO

Thailand2 years ago

Thailand News Today | Gambling crackdown, Seafood market to reopen, Vlogger challenge | Jan 21

Thailand2 years ago

Thailand News Today | Covid testing for visas, Business impact, Vaccine approval | January 19

Thailand2 years ago

Thailand News Today | Weekend Bangkok bombs, Thailand fires, Covid update | January 18

Thailand2 years ago

Thailand News Today | Stray car on runway, Indonesian quake, 300 baht tourist fee | January 15

Thailand2 years ago

Thailand News Today | Governor off respirator, sex-trafficking arrest, condo prices falling | January 14

Thailand2 years ago

Thailand News Today | Chinese vaccine, Thailand ‘drug hub’, Covid update | January 13

Thailand2 years ago

Thailand News Today | Bangkok may ease restrictions, Phuket bar curfew, Vaccine roll out | January 12

Thailand2 years ago

Thailand News Today | Covid latest, Cockfights closed down, Bryde’s Whale beached | January 11

Trending