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ALIBABA HK IPO..... (Investment Profit Overdrive)

Pre IPO

Alibaba announced second public listing in Hong Kong had got me excited about this stock again. The listing will be the biggest IPO listing in HKSE. I had been "hibernating" since I sold out all my BABA shares back in March 2019 for $180. You can click on my link below to read about this trade back in early 2019.

Other Posting link: Click here:
 ALIBABA 2019 ....... Feasting with 40 Thieves (Part-1)



The major Setup

Back in Oct 2019 it was trading at around $160-$170 range, same level as 2017. In my opinion, this stock is way under-value, the company's revenue and profit have been growing at North of 40% every year and yet the share price stuck at 2017 level. For me, this is a perfect setup for major breakout. Just like a pressure cooker, you keep pumping steam (profit) into same pot size never increase (Stock price). It will going to pop anytime when you lift the lit.   



There are 2 major events took place in Nov which I hope will boost its share price before the IPO kick in.

1. Quarter Sep 2019 earning announcement 1.11.2019 - The results was fantastic!  
Revenue was RMB119,017 million (US$16,651 million), an increase of 40% year-over-year.
Non-GAAP net income was RMB32,750 million (US$4,582 million), an increase of 40% year-over-year.
2. Global Shopping Event 11.11.2019 - Voila!
Generated US$12 Billion of GMV in the First Hour of the Global Shopping Festival.
Generated RMB268.4 billion (US$38.4 billion) of gross merchandise volume (GMV) in 2019, an increase of 26% compared to 2018.
So, I put up a huge positions for BABA in Oct, hoping to profit from those events above. It was a gamble, but the risk is well managed with the low share price. Both events had past with much fanfare, but yet the share price failed to lit up. To my disappointment, it bounce around $170.  

Post Mortem

It was a very disappointing indeed. The stock failed to ignite was not due to company's performance. It had done very well on both financial matrix and major sales events like "Single Days". It was mainly due to external factors. 2 major events keep people from investing in BABA and analysts were bearish about:
  1. China GDP and companies profitability decelerating - there was concern it might affecting consumer spending sentiment.
  2. China-US trade war drag on - the flight to safety was so great to avoid more damage from the tariff increase.
The pressure in the cooker keep building. I double down my investment in BABA, as I think the China GDP had no impact on consumer spending as the middle income class keep expanding and the trade war will resolved eventually given that Mr. Trump need that badly to boost his rating. No turning back for me as I put my wager down. I'm hoping that the new HK IPO will pop open the lit and let the steam out.   

The IPO (Investment Profit Overdrive)

Alibaba Group announced to raise US$12.9 billion from its landmark Hong Kong listing and is set to price its shares at HK$176 (S$30.62) each, start trading on 26 Nov 2019. Shares of Chinese e-commerce giant Alibaba saw a strong debut in Hong Kong surged more than 6% at debut, intraday high of HKD189.50.
Since the HK IPO listing, BABA share surge almost daily hitting it 52 week high within 2 weeks. The cooker's lit had finally popped open, letting the steam out. The truce reached in the China-US trade war back in Dec-14 had bring back much needed boost for this Chinese stock. Turning a "flight to safety" trade, avoid all "Chinese stock" event into "risk on" overdrive. 
Alibaba currently trading at USD215 after 1 month since IPO. Up > 20% since my last bought.  Hey, I'm not popping my champagne yet and not selling my stake. I think the surge is not over yet, there are few more events may add more "boost" to the share price. I'm looking at next 2 major events that will be significantly impact the valuation of the stock price. 
  1. Inclusion into Shanghai Stock Connect - this inclusion will open a floodgate of 100 millions investors in China eligible to invest in this HK biggest IPO stock. This will help boost the share price valuation. 
  2. Inclusion into the major world Index -  Due to its capitalization size, it will be include into major index such as Hang Seng Index and MSCI China etc. This will drive up the buy side demands from index fund managers' portfolio that require mirroring the index performance. 

Personal notes:

I like to read especially books about investing. However, I didn't read much as I would like to in 2019. One of my new year resolution in 2020 is to read more. This is for my own personal development. Always stay humble and stay hunger for knowledge. I hope I can complete 1 book per month and hopefully I can share some of my read in this blog. Currently I'm reading this book below.
Cheers and enjoy the remaining 2019 before it is gone. Happy New Year 2020 to all. This Chinese drama " The legend of white snake" debut in 2019, I find it very entertaining to watch. Hope you will like it too.

- WILLIAM CHENG

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Boom and Bust in 2019 revealed

The Good and Ugly of 2019

Few more days to go before we usher the arrival of 2020, it is good to take a moment to reflect on this journey in 2019. You may hit some goldmines or landmines along the way, but what's matter most is the valuable lessons that you learn from the journey. This year is the most eventful, full of risk volatility due to external political headwinds. From trade war, Brexit to Hong Kong protest, I would said the stock markets braved through with only few pocket of corrections with not more than 5%. The pocket of corrections are where the opportunities you should trade to maximized the gains.



Most people think when the market is falling, the risk is higher to trade and you should exit. I bet to differ. I think when the market goes lower, the risk to trade is lower and that is how I manage my risk. That is why each time the market start falling, I got so excited because I can acquire a excellence business at the lower risk and higher profit margin.




In 2019, US market still in bull ride while the rest of the world trying to find its footing. We are now in the 11 years of bull run since the last recession in 2009. The bull shows no sign of slowing down and it was forecasted to continue into 2020 and beyond. Some businesses had a short corrections in 2019 especially for semiconductors, commodity and car industry but analyst predict recovery is now underway in 2020.

 Post mortem 2019

As the year coming to a close, it is a good moment to do a recap of my investment journey in 2019. Overall, this year fare much better that last year. I had make far less trades this year but bigger gains to my portfolio, mainly the gains come from US portfolio.

I make a total of 36 trades this year, 97% of the trades were in US and SG market. I only make 1 trade in KLSE this year.



Out of 36 trades, 21 trades were profitable and 15 were in "Red". So, my success rate of picking the winners is 58% only. Some of my decision to sell at loss was due to fear of market correction. Cut loss to manage my risk which I regret later on as the market recovered every time it dropped from peak. Some trades are due to company's fundamentally had changed, I decided to move my funds to better counters. The rest were sold at loss to rebalance my portfolio.



Even though my success rate was 58%, my profit for each successful trade far outperformed than those bad trades I make. For every $1 value I loss in the market, I make $9 profit gains from my trade. It seem that my entry and exit strategies works well this year. We should let the good trade run its course and fast to act when the tide turns. Stop loss strategies is useful to keep the loss at minimum and maximize profit from the bull's rage.


You may wonder why I didn't mentioned much about my trade losses. It is not because I don't like talk about it, but the magnitude of the trade losses is not significant enough to be mentioned. Just to cure your curiosity, I will make a list of top trade losses below for your reading pleasure.

My top 3 most profitable trades in 2019:

1. Alibaba (NYSE)
2. Facebook (NASDAQ)
3. Capitaland (STI)

My top 3 most UN-profitable trades in 2019:

1. Alibaba (NYSE) - $1900 loss
2. Disney (NYSE) -$1100 loss
3. Dow30 UltraShort (ETF) -$880 loss

**All the records above are based on completed trade, which positions were bought and sold done in 2019. There are few stock holdings in my portfolio currently which I had not decided to sell yet. It is not included in the chart and stock list above.**

Personal notes:

There are few lessons I learnt from managing my portfolio in 2019. I'm sharing some of personal thoughts below:

1. Value Grab vs. Bottom Fishing: . Since I could not predict when is the peak or bottom for stock price's movement, I would never try to time my trade and hope to catch the bottom. I will make the trade based on value investing analysis. This method was popularized by Benjamin Graham. I will start buying in small volume when I see a value emerged. It may dropped below my initial buying price but that is okay. I will add into my position as the price goes cheaper. I called it a "Value Grab" trade, which preferred over "bottom fishing".

2. Patience: One of the biggest lesson I learnt when betting with your hard earned dollars. I learnt to be very patience when making a trade. Patiently wait for sellers to subside and buyers to emerged pushing up when they start to sense the value in the stock. Sometimes if you try to wait for the technical indicators to give you the green light to buy, it may be too late to benefit from "market inefficiency", the share price already gone up so much to reflect the current value. Being late to the game is high risk of being the baits for big white sharks.

3. "Blind Spot Investing"-Market efficiency theory: "Market is Always efficient" when all the information make available to public and it reflected in the share price. "Market inefficiency" theory occurred when the public is unaware the true value and the price is not reflecting the true value of the company. I called it "Blind Spot Investing". This is where you have to make the biggest bets to gain maximum profit before others sniff out the gems. That was how Warren Buffet make his legendary trade on Coke, AMEX, BoA and many more. You can read how those legendary individuals make their trade through books or website.

Into 2020

In the coming year 2020, I would like to make less trade and increase the profitable trade ratio which currently at low 58% success rate. This can only happen if I really planned my trade well and stay faithful to my trading principles. A lot of self control and discipline needed.

To end this milestone 2019, I would like to wish everyone a Merry Christmas and Happy new year!.  


Other interesting articles to read; Please Click the links below:

CAPITALAND....... Land of Capital Growth

ALIBABA 2019 ....... Feasting with 40 Thieves (Part-1)      

KEPPEL KBS US REIT...... Take the JUMP!

2018 Malaysia Election...... the death star of my WIN-ning steak



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ALIBABA 2019 ....... Feasting with 40 Thieves (Part-1)

Reflections of 2019
As YR 2019 draw to a close this month, I would like reflect on the some of most significant events in my investment for the year. It had been a very good year for me, the best year in term of investment return as almost all Indexes reaching record high. There are so many investing journeys that I would like to post in this blog, however I had difficulties in finding time to write more posting.



Today, I would like to write about one of my greatest investment journey, ALIBABA, ticker BABA. I had written several posting on Alibaba for YR 2017 and 2018, you can refer to my previous article. This year the effects multiplied due to trade war and the Hong Kong IPO. I will end this year in my last posting next week with a summary of my trade for 2019.

ALIBABA IPO
I think Alibaba's decision to list new share in Hong Kong is a brilliant move. For those who had invested in anticipation for HK IPO had already making a good ROI. Congratulations for those warriors who took the bets. Again, congratulation and I think this is just the beginnings of a great journey.



WHY Jack Ma??
I had been investing in this company for past 3 years because I believe in Jack Ma's vision. The company is at the epicenter of "Mega trends" of changing consumer's lifestyle. I believe this trend will continue for multiple years.

The quality attributes that I like about Alibaba (from previous posting):

1. Right business model at right market trend
2. strong economic moat - King of the jungle
3. high growth rate, >40%
4. Low PEG ratio <1.0
5. Very profitable, positive cash flow

The right key to Treasure Chest
What is the key for profitable trade? The KEY is the timing for entry in any investment. Any external events can create a perfect setup for right entry point in profitable investment. As for Alibaba, the US-China Trade War is the "KEY".



Turning Crisis to Opportunity
During the peak of heated arguments between Xi and Trump in early 2019, US listed Chinese companies become the victims. I have not seen such level of fears in the market and the fierce downgrade had create gigantic risks that no one dare to buy. The dropped from $210 (where I sold all my BABA stock in 2018) to $130, many investors were running for exit. I saw a great opportunity to accumulate more BABA stock during the crisis.



Feasting during the harvest
External crisis had no effects on Chinese consumer's sentiment as they continue to spend, Alibaba continue to registered record profits quarter after quarter. It helps to push the share price to recovery mode. I finally sold all my holdings above $180 in March 2019. My return on investment was >20% in 3 months.

Personal notes:

I don't believe in diversification. Using diversification to manage risk is very popular among investors. However, this method will also dilute your returns in long run. Even though you have higher chance of hitting multi-baggers, you also have equal chance of hitting landmines. Many of us who are not full time investors, does not have the luxury of time to study reports, monitor and strategize for 30, 50 or 100+ stock counters.
In summary, diversifications will not bring much benefits to your bottom lines with low stock's ROI and huge efforts required/ time wasted.



In my portfolio, I always limit my holding to maximum 10 stocks or less at any given time horizon. I invest in very limited stock counters. Making very few trades per year but I make sure each stock's ROI is significant. I would spend great amount of time to study the stock and strategized my investing plan to manage my risk. Once I have decided to invest, I would move in and hold a very large positions that will have significant impacts to my bottom lines when the stock price move either way.



Why would I want to waste my precious time and effort investing that doesn't make significant impact? I would rather spend time relaxing at wonderful resort in Bali, than suffer mentally and emotionally to trade for penny return.

Simple calculation of if your time worth the trade you make. look at how much you make per hours as employee in the company and multiply by how much time you spend on making a trade. If it doesn't give you >3 times of the returns, don't bother to trade. Just focus on your daytime job and buy mutual funds. Or hire a fund manager to manage for you.


Finally, this is my favorite song from Stephanie Ho, "True Lovers" from TVB drama "Run Over Run" theme song.

-William Cheng


     



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