E The Problem Of Investing In Alibaba

BABA’s 75% surge in their first two months as a public company is as irrational as the fall below $70. Despite the sentiment shift, the bottom is not fully known for Alibaba. It depends. All investors know is that the trading on the stock in the last few months through this past summer is no surprise. There’s only one big surprise: volatility in China.

What takes centre stage now is China. http://bit.ly/1RmaRl7

The biggest worry for investors are:

1) China’s abrupt shift from state capitalism to closed capitalism (no longer as a free market). It will have an impact on BABA’s global expansion plans, and will limit growth strictly in China.

2) investor ownership in BABA is through ADR only. If there are truly any irregularities, investors have no legal recourse

The overarching lesson from Alibaba’s stock fall from its peak is that isn’t company specific. Other China-listed firms fared worse. BABA’s IPO was also perfectly timed. Insiders knew when to sell, and have a good sense of the market when it is about at peak.

Just look at GPRO, FIT, AMBA, ZNGA, GRPN, MBLY, and MOBL for examples of well-timed IPOs. Those new to the markets won’t know that the rebound takes a long time to play out.

See trading data from 1998-2001 and their stock data 2005 – 2014 for examples.

Here is a Tickertag trend on Alibaba stock compared to the trending keywords on the internet (“tmall,” “alipay”):

Click on picture to enlarge

Those insisting they know more about China’s market may buy BABA freely, but those with some humility should recognize the unknown risks and prepare accordingly.*

In my subscription thread on Seeking Alpha,  I said: “Last week’s article was bearish, but not enough. The “don’t trust China” mantra was not mentioned nearly enough, either. China’s aggressive moves to prop stock markets spooked world markets. Alibaba (NYSE:BABA) and Trina Solar (NYSE:TSL) are the only stocks I consider for China-based firms, but with caution. Trina touched yearly lows despite beating expectations. My price target for BABA is in the low 60’s (when the stock was ~$80).”