I Sold Alibaba Stock And Won't Touch A Chinese Stock Ever AgainFeb 11, 2024
Hello Stoic Investors,
Today I want to talk about Alibaba stocks.
As an investing coach, with all my students I always try to show what I did in my career as an investor so
that they can avoid certain mistakes that will cost a lot.
I'm going to talk about Alibaba as an investment and why I'm not going to touch any Chinese stock further
Why did I buy Alibaba?
The simple idea is that I saw Alibaba as the Amazon of China.
It was cheap in valuation and it had growing results for many years in a row.
I felt that the China risk, for which the stock was dropping, was not reasonable and that over time the
company would have shown its true value and therefore become a very profitable investment.
I'm not the only one that thought about this, because many big investors invested in this, and everybody was
expecting to see certain results.
How I think about new investments
Each investment I make must have a clear investment thesis:
1. I analyze the stock through qualitative analysis, which means looking at the management, competitive
advantage, products, stuff like that
2. Then I look at it from a quantitative perspective, which means looking at the numbers, the ratio,
comparing to other companies.
3. Finally I close up with a discounted cash flow stock analysis, which is a useful method to understand the
value of a single share, because it gives you the right price based on the assumptions around that stock.
So, the simple idea is that once you understand the value of the company, it is important to understand
whether it is undervalued right now.
Going back to Alibaba, I analyzed it in 2021.
I thought it was undervalued and the company was good, so I bought it.
But now, if we look at the graph below, we can see how it went down through the years.
At first, I thought that maybe it was just a bad period, because of inflation, interest rates, or whatever, but
then it kept going lower and lower.
At the peak, it was at $300, and now it is at $65.
It means that there are people that lost 80% on this investment.
This wasn’t an encouraging view.
I was puzzled about the results of this investment.
It was a good company, so why it was just losing more and more value?
Then, I saw a graph that made me realize what was missing my investment thesis.
It shows that China GDP, from 2010 to 2021, basically went up four times, from 5 trillions to 20 trillions. A
Remember that in the long run the stock market performance should reflects the economic performance.
For example US GDP, in the same period, grew of 66% and the relative stock market made approximately a
So if China GDP had this huge growth, the Chinese Stock market should have grown a lot, right?
… Well, look at the Chinese stock market performance in this graph:
Just a 20% return in 14 YEARS.
How is it possible?
My idea is that this is happening because the big investors of US aren’t putting money into China.
Think about it.
The more money goes into an investment, the more it will grow.
Even if you discover a good stock before everyone else, its price won't increase if the major investors don't
agree with you.
However it’s not the investment of the average people, like you and me, that make the difference.
An investment grows when the big hedge funds invest into it.
And at the current time the big hedge funds are all based in US – which means that the country “dictates”
which stocks will perform well and which won’t.
If it's difficult to imagine, let me give you a statistic.
The US stock market capitalization, meaning how much is worth the US Stock Market, is around 66% of the
worldwide market capitalization.
It means that the game of the stock market in 2024 is owned by US, and you can’t go against it.
Given the current political tension between US and China, I believe the US government has some power to
prevent these funds from investing in China.
So once my world view changed, I realized why Alibaba is unlikely to grow.
This is why I decided to sell Alibaba and avoid any Chinese stock and, in general, any stock of countries that
are not in good relations with US.
So, note down these three key points and start investing today:
1. Before making an investment, do both qualitative and quantitative analyses to understand the
company's fundamentals and market position.
2. Right now, avoid stocks of countries that aren’t in good relations with US.
3. Keep in mind that finding a good stock early isn't enough; you need big investors to agree with
you, or the stock price won't go up much.