Portfolio Update: New Addition (BABA; September 19, 2014)

by FI Fighter on September 21, 2014

in Stock Portfolio Updates

Screen Shot 2014-09-21 at 8.51.25 PM

It’s been a long, long time since I last posted about purchasing any individual stocks. Last Friday, I joined the legion of masses and got suckered into participating in the heavily hyped Alibaba (BABA) IPO!

Prior to the shares opening up to us small retail investors, I set a limit order of $75/share, and was hoping to purchase 100+ shares. I woke up early Friday morning and tuned into Bloomberg… And for the next few hours, I watched as the hype only seemed to grow and grow. Every five minutes, there was another BREAKING NEWS report about the stock opening at a higher price. So much for opening at only $68… Dream on, I suppose…

It wasn’t before long that I realized that my limit order would never trigger… Just before the stock finally started trading, I revised my limit to $92.

The stock opened at $93+, and quickly shot up to $95, and then to $97. Fearing that it would soon spike over $100, I revised my limit order to $100, and put in an order for 100 shares.

My order was filled at $98.98 for the purchase of 100 shares. And just like that, I became a “shareholder” of Alibaba.

A mere seconds after my transaction, the stock proceeded to tumble downhill… By mid-day it was down to $89… It closed opening day at $93.89… And just like that, I’m already starting out in the RED! Talk about bad market timing…

I don’t normally participate in these type of IPO events, and for good reason! Lost in the BABA frenzy, I found myself overreacting and responding like this was some kind of Black Friday event… Stock analysis, valuation, and basically all meaningful metrics kind of just go out the window when you’re dealing with potential hyper-growth stocks. Just madness (and greed)!

So, BABA is just a side hustle for me… Short-term, I think the stock will be highly volatile, and it’ll swing wildly from day-to-day. In the near-term, I do believe that investor exuberance (whether justified or not) will send the stock soaring much higher. I plan on capitalizing on this, hopefully.

Now, whether BABA deserves a market cap of $233 billion (which is greater than Facebook (FB) at $203 billion, or Procter and Gamble (PG) at $229 billion) is anyone’s guess. Frankly, BABA won’t become a core investment of mine, so I’m not going to spend too much time doing detective work, trying to decipher what the heck a variable interest entity (VIE) is, anyway?

I don’t expect many others out there to agree with my investment strategy on this one… In fact, purchasing BABA is sort of the antithesis of smart, responsible, and sane dividend growth investing. For starters, BABA doesn’t, and won’t pay a dividend any time soon, so it won’t help me generate any passive income…

But, sometimes you have to swing for the fences if you want to make a quick buck… Again, not a core investment strategy, but another side hustle… Lately, I’ve been having a bit too many of these, it seems…

Wish me luck, I’ll probably need it on this one! 🙂

{ 9 comments… read them below or add one }

1 Arizona Trader (@ArizonaTrader)No Gravatar September 22, 2014 at 6:24 am

Wow, a dividend investor confesses buying $BABA on IPO day. I hope it works out for you. The only person who really makes money on these IPO days is the CEO. Jack had huge grin on his face Friday. To go from around $66/share to open at 92, not a bad payday. Good luck.

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2 FI FighterNo Gravatar September 23, 2014 at 8:23 am

Arizona Trader,

Yeah, going to $66 to $92 was an insane jump on opening day… You can see how excited and overwhelmed a lot of the Alibaba staff was… Lots of people’s dreams came true that day…

For the small investors, we will see over the years whether or not this investment pays off.

Cheers!

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3 DavidNo Gravatar September 25, 2014 at 3:49 am

Even at $66 the guy was already going to be one of the richest people in the world and don’t forget his own shares are locked up for 90-180 days, but I’m sure he can easily get a line of credit on that immense paper wealth. Plenty of others also made money including their investors (e.g,. Yahoo! and other VCs) and of course the Investment Banks that underwrite the float. The lead underwriter typically makes 5-7% of the total offering (at this value I’m sure Alibaba negotiated something closer to 1-3% or a fixed fee).

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4 Zee @ Work To Not WorkNo Gravatar September 22, 2014 at 8:14 am

I try to stay away from the over hyped IPO’s for exactly these reasons. When people that don’t even invest in stocks start talking about buying them I run for the hills! I avoided facebook’s IPO for that same reason and then it tanked. When I saw blood in the streets I picked up some shares. Looking back I wish I picked up more but oh well. IPO’s just seem like too much stress to want to participate in.

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5 FI FighterNo Gravatar September 23, 2014 at 8:25 am

Zee,

Yeah, this was the first IPO I ever participated in… I joined in with a friend for the experience, and right now the move isn’t looking too smart.

With this stock, hopefully I won’t need the funds anytime soon, so that I can just set it aside and not think about it for awhile. If not a few months, a few years…

Take care!

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6 BrandonNo Gravatar September 22, 2014 at 1:37 pm

It happens. I was on loyal3 when Globant S.A. came out, and just for shits and giggles I bought $150 worth at $10 (IPO price), it’s hovered around $13.xx since. Nice for a 30% gain, even if it is hype.

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7 FI FighterNo Gravatar September 23, 2014 at 8:26 am

Brandon,

30% gains, that’s tough to beat! If I can get that from BABA, that will be music to my ears. 🙂

All the best!

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8 PCNo Gravatar September 23, 2014 at 12:41 pm

I was trigger happy too… bought 10 shares @ $98.00 right off the bat. I wanted in on the action. I will not sell out for a loss… so I’m keeping my shares. It might take a while before it bounces over our buy in price. Hang in there 🙂

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9 MartinNo Gravatar September 24, 2014 at 1:24 pm

I did some reading and it looks like BABA is in the same category as AMZN, Groupon and similar. From what I could figure out, it has a better biz model than AMZN and it may actually move similar direction.

Will BABA follow the same path as AMZN, Netflix, Visa, MA, Google, FB, and similar stocks which went from their $50 – $90s IPOs to $300 – $500s? I invested in all of those stocks above (except MA, FB, and Google) when they went IPO and sold them too early. I made money, but if I kept holding, I could four-five-fold my stake.

So who knows what BABA will do, I have a feeling it may be a good deal. So, originally I also was thinking to stay away, but after some reading I decided to take a small position (12 shares only for little over $1000) and plan on keeping it for some time for price appreciation. I joined today.

And when comparing BABA with FB, then in my opinion, FB is a lot worse as a biz model. It does nothing, creates nothing, sells nothing, it just let nerds posting whatever (nude pictures) and wasting their time and sell advertisement. BABA will make money from participating businesses, get their share from sales, and advertising.

Good luck to all of you who decided to get into this play. Usually IPOs have tendency to fall down within a year and then turn around. I have such experience with Visa, and Netflix which did exactly that, scared me out and I sold as soon as their prices got a bit above my initial purchase. I hope my BABA assessment is correct and this time I will make five fold.

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