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Portfolio Update: New Addition (BABA; February 23, 2015)

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Ok, I think it’s safe to say that Wall Street isn’t a fan of Alibaba (BABA) right now. It doesn’t seem like many investors want to touch this stock either, but for some reason or another, I keep finding myself drawn in to buy more shares.

You can call me an idiot if you’d like (and perhaps that’s justified), but this stock simply looks too compelling at current valuations to ignore.

Earlier this morning, I purchased 112 shares of BABA for $85.70/share. I now own 400 shares of BABA.

It’s very possible that I’m making the big mistake of “catching a falling knife”, but I prefer to look at things from a slightly different angle. For starters, today’s transaction reduced my cost basis from $99.34/share to $95.53/share… Prior to the two purchases I made in BABA this month, my cost basis was $105/share.

In the short-term, it’s generally no fun to see a stock you own dropping in price day after day, week after week, but in this case, I more than welcome it! I’m thrilled that I’ve been able to reduce my cost basis by another ~$4/share, while in the process accumulating a much larger position. 🙂

I’m nothing more than a retail investor, but I’ve been investing long enough to now be able to easily block out any negative emotions… It’s all a part of the game.

For those who remember, Facebook (FB) was a similar growth story that experienced huge hype prior to its IPO in 2012. The stock closed at $38.23 on May 18, 2012. From that point on, the stock proceed to go downhill, and one year later, it closed at $25.76 on May 20, 2013. If you were an investor from the start, talk about carrying around some dead weight!

Today, FB stock is doing much better and has doubled in value from that initial IPO price.

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Google Finance

It’s not certain by any means that BABA stock will experience the same gains as FB… but I wouldn’t be surprised in the slightest to see similar (if not better) results. I think the key will be to remain patient, and let the market carry on… Stocks fall into and out of favor all the time, that’s just how the markets operate.

Here are some key BABA stats from Morningstar:

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Morningstar Key Stats

Well, I think it’s pretty straight-forward when it comes to analyzing BABA — It’s all about the growth!!!

Since I now own 400 shares in BABA, I’m at a comfortable position moving forward. If there are any more dips, I’ll most likely add another 100 shares or so… Aside from that, I’m going to ignore the noise and focus my attention on other stocks now.

As I recently shared with readers, I would like to build a portfolio comprised of about 22 holdings, spread out across various industries. Lately, I’ve been very focused on BABA because I feel that the stock is undervalued and presents a good entry point for investors. If the growth story holds, today’s price will look like a bargain many years from now.

Anyway, it’s about time for me to move on to other stocks… Gilead Sciences (GILD) is on my radar next.

Happy Investing!

{ 17 comments… add one }
  • Asset-GrinderNo Gravatar February 23, 2015, 3:05 pm

    Ive beenin and out from baba a lil bit and at these levels its a bargain. I might sell some puts to get in on some action hopefully at a cheaper price or for some premiums

    • FI FighterNo Gravatar February 23, 2015, 4:19 pm

      Asset Grinder,

      That’s a good way to reduce the cost basis even further! Since my holding period on this one should be really looooooong, I’m ok with being assigned the shares now and waiting.

      But collecting premiums is always a good thing 🙂

      Cheers!

  • No Nonsense LandlordNo Gravatar February 23, 2015, 3:49 pm

    When you are chasing momentum stocks, they need momentum. I would be selling covered calls on your shares. There are far too many other stock candidates to chase for a quick $2 and on to the next.

    I was a stock chaser too. It may work out, but odds are not as good as the S&P ion the long run.

    The market has been up many days, yet BABA was down those same days. That is a bad sign.

    • FI FighterNo Gravatar February 23, 2015, 4:23 pm

      Eric,

      Yup, there’s no momentum to be found here right now… This stock is stuck in the mud! But my holding period is going to be long-term, so I’m ok with getting in at today’s prices… I don’t need to try and time the market exactly, and I’ve been nibbling my way in, so to speak.

      Right now, I’m content with the allocation I’ve got moving forward. If more opportunities arise, I may add more shares to reduce the cost basis further. Otherwise, I’ll just set it and forget it…

      Will this stock beat the S&P 500? Maybe… Maybe not. I also buy index funds, so I’ve got that base covered as well.

      Bad signs are appealing to me and I tend to use them as indicators to buy! 🙂 Trend lines, momentum and all the works are necessary for traders, but I’m more a buy and hold investor, so they don’t mean much to me.

      Happy investing!

  • joeNo Gravatar February 23, 2015, 5:07 pm

    I have been reading your blog for a while now.. it seems to me that you have gotten a little reckless.. I agree with the general sentiment expressed above.. you would do far better and with less risk in an index fund regardless of the fact that you already have an index fund. or at the very least buy a low cost actively managed fund. with your job instability and low net worth for 4% rule you should tread carefully.

    • FI FighterNo Gravatar February 23, 2015, 5:20 pm

      Joe,

      Thanks for the reminder Joe — Always good to get feedback, and perhaps I am getting a little carried away with the whole search for growth companies…

      Following this move, I will need to get back on track and work on acquiring some more defensive holdings.

      I’m not so much relying on the 4% rule, but I see what you mean…

      Best wishes!

  • EvanNo Gravatar February 23, 2015, 7:48 pm

    I am way too much of a value investor to be into Baba. I think that type of mindset has really held me back on some great growth stories though….

    • FI FighterNo Gravatar February 23, 2015, 9:29 pm

      Evan,

      I understand your reasoning… For a typical value investor, BABA definitely does not fit the bill…

      Since I invest for both value and growth, I always have to make sure to put on a different hat when analyzing the two… they are vastly different.

      For a growth company like BABA, I’m calling it undervalued when the P/E is right around 50 and forward P/E is ~30! I’m sure that’s tough to swallow for many value investors 😉

      Cheers!

      • EvanNo Gravatar February 23, 2015, 9:30 pm

        But sometimes I feel like I am the crazy one – all you have to do is look at the chart on $AMZN

        • FI FighterNo Gravatar February 23, 2015, 9:52 pm

          AMZN is one stock that I’ve never understood and never will understand… If people think BABA is insane, how do you even begin to explain AMZN?

          AMZN in a nutshell has been all about revenue growth up to now. Profitability has always taken a backseat to that, and it doesn’t seem like investors have cared, quarter after quarter… year after year.

          I look at BABA as a stock similar to AMZN w/ a hint of eBay and paypal mixed in, and with perhaps more growth potential due to China and less overhead.

  • A Frugal Family's JourneyNo Gravatar February 23, 2015, 7:50 pm

    Wow…nice large infusion of capital into that investment portfolio! Although I am much more conservative with my investment style, I must say the potential reward sometimes tempt me to move outside of my comfort level.

    Good luck with your purchase…hope it proves to be an success to the Facebook story. AFFJ

    • FI FighterNo Gravatar February 23, 2015, 9:34 pm

      AFFJ,

      Yup, I got some capital to play with and have been going on some buying sprees of late! 🙂

      An investment such as this is definitely more risky, and I can understand why many other investors who choose not to take the gamble… As mentioned above, I can be a bit reckless at times, and this is one of my “get rich quick” ideas that may or may not pan out…

      Ultimately, investing is about risk management and in this case, I’m willing to roll the dice a little. Although I have a good portion of funds tied into this stock, it will not make or break my fundamental objective — financial freedom. As long as I stay the course and keep making sure to increase the cash flow, I should be ok, regardless of how this side hustle turns out.

      Of course, if things go well, then the path can be made much easier as well.

      All the best!

  • ZeeNo Gravatar February 24, 2015, 12:07 am

    I’ve been thinking of this one for a little while now, I still think I’m going to wait about a month to see what happens with the lock up period ending on a lot of share holders. For some reason I don’t think it will impact things much but to me it would give me a little more piece of mind before I jump in. Who knows, I may end up waiting until after a rebound and then I’ll be kicking myself. Right now there’s a lot of pain in this stock (which can be a good sign to buy), but I’m not seeing the blood in the streets like I did when FB was down at $19

    • FI FighterNo Gravatar February 27, 2015, 10:47 am

      Zee,

      I agree, it’s still early and I don’t sense the “blood in the streets” with BABA just yet… It may be prudent to wait until that time comes because there may be an opportunity in the future.

      I didn’t want to speculate too much, and since I believe in the company long-term, I was comfortable at adding more shares at the current price.

      Best wishes!

  • Lyndon @ Walsh TaylorNo Gravatar February 24, 2015, 10:30 am

    I think Alibaba is a safe investment. They just put serious money into Meizu, a chinese smartphone maker of some serious promise. That’s going to be a great business for them

    • FI FighterNo Gravatar February 27, 2015, 10:50 am

      Lyndon,

      Yes, they are making all sorts of investments, and a lot of money is being poured into smartphones. In addition to Meizu, they are investing heavily into India.

      Alibaba is not a start-up, and they own e-commerce in China, so I’m not too worried about this being a risky investment. Too big to fail? For now, it seems that way.

      All the best!

  • MartinNo Gravatar March 9, 2015, 9:01 pm

    I no longer believe in BABA, so I sold my shares. If buying stocks, I will stick to dividend stocks and then trading options obviously.

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