I Keep Buying Alibaba, Here's Why...

welcome everyone thanks for joining i did it i bought another thousand dollars of alibaba and i continue to buy this company despite the many opposing opinions i realize that alibaba is a polarizing investment there's many extreme opinions on both sides either people are very for alibaba thinking it's one of the most deeply discounted impressive growth stories in the market or they believe that it's unpredictable it's controlled by the chinese government and it's a fool's errand to be investing in this company and right now the people that are predicting that it's a fool's errand to be investing in this company are feeling pretty good about themselves right now they are being proven right as of right now but despite that despite the fact that right now alibaba stock continues to fall every single week every month it just continues to go down lower and lower i continue to find this company more attractive i can i continue to find the risk associated with this stock lower and lower as the price drops and so i'm buying more of this company now in this video i want to do an updated opinion on this stock i want to address some of the concerns like all the various concerns that we have right now all the news about the vie structure the unpredictability of the government everything going on with this investment i want to take a holistic look at it a holistic approach at it we're also going to be looking at one person's opinion that i respect ray dalio on china and the chinese government and capitalism and communism he gives us his opinion which i think is a much more informed and level-headed opinion than the mainstream u.s media so we'll be looking at ray dalio's opinion on china as well as my overall updated opinion on alibaba now as always we have to give a quick update on my portfolio this is a real portfolio with roughly a hundred thousand dollars in it and we're going to update on how this is performing against the s p 500. if you're new to the channel i track this every single week and we take a look and see if i'm outperforming or underperforming the market the s p 500. i invest in a lot of growth companies that i think have good balance sheets they have good growth opportunities i think they have stable resilient income and i believe that they'll grow their earnings much faster than spy and these companies will be much much more valuable and they'll grow at a faster rate than the rest of the markets so the hope is here and the goal is to comfortably outperform the s p 500 over five year timeline right now we're about a year into it and as of an hour ago when i updated this we're basically matched with the s p 500 we're a half a percent above it so not amazing but not terrible the story fund has returned 15 16 time weighted returns while the s p 500 has returned 15.53 so both of them are roughly the same it really has not been enough time to see if i pull away for a prolonged period of time or if i keep matching the s p 500 i believe that over time i'll outperform spy i think over the next couple years the differences will be more noticeable with the companies that i'm investing in and the rest of the market but as of right now it's a close race now looking at alibaba specifically let's talk about this company it has gone down in value over and over and over again it continues to just fall in value in fact if we look at the stock price here this is the chart look at this it's down nearly 53 percent from its all-time highs that is an incredible drop it's trading at 148 dollars a share today when i put a thousand dollars in just a couple days ago it was at 150 so we're down two dollars from that latest thousand dollar purchase i feel very comfortable and very good about this purchase i think that right now looking back if we look back on alibaba as an investment we'll look back and view it as very cheap during this time period it doesn't sound like it now i know with all the news and the concerns surrounding china that right now alibaba feels scary it feels intimidating it feels uncertain and as investors you you crave certainty but i truly believe that over the next five years this will be one of those cases where we can't believe how cheap alibaba traded back in 2021 that was a unique time to buy the company and investors that took advantage of that were greatly rewarded so that's what i'm trying to do in this situation controversy is not new to companies scandals is not new to companies having government regulation and fear surrounding that is not new to companies and having great companies that have moats they might even have monopolies they're incredibly fast growing companies they're powerful companies they're almost unstoppable but yet they still trade way down from their intrinsic value for a long period of time is not new none of this is new it happens all the time i can give the example of facebook back in 2018 facebook traded down 40 from its peak this is back in 2018 all the way down to 132 dollars a share let's go back and look at that that was in 2018 it traded down to 131 dollars a share and it even got as low as 124 at one point this was during the whole scandal of the cambridge analytica scandal do you remember that if you go back to 2018 do you remember the cambridge analytica scandal i think it was some like app or something on facebook that did surveys and gathered a bunch of people's information and then they sold it to different political affiliates or something like that i don't know don't quote me on that but it was some scandal that at the time was very important very scary investors became very intimidated about the story of facebook and as a result investors sold 40 of the company traded down to 132. facebook stands right now at 341 dollars a share so what four years later it's over doubled in fact it's gone up quite a bit since then if we bought it during the low it's up 156 percent today so that's a pretty good gain over the past four years the point being that now it looks almost comical that facebook would sell down 40 because of cambridge analytica but at the time when all that news was was being broadcasted when there is the wall street journal and bloomberg and seeking alpha and investors on reddit talking about the facebook cambridge analytica scandal that became scary and concerning for investors in the moment it never feels good to buy when other people are being fearful your natural tendency is to be fearful along with them being greedy during these times is very difficult it's something that you have to go against the grain you have to control your emotions look at the actual situation look at what's actually going on and determine whether you're buying value at that time point the investors that did buy during this time point which i know some hedge funds that went in heavily into facebook during this specific dip are heavily rewarded that's how they outperform the s p 500 dramatically over the next three to four years now i realize that alibaba is not the same company as facebook and i know that there will be people that highlight the differences facebook is in the us facebook isn't a vie structure right it's not controlled by the chinese government that's true they are different but every time there's a sell-off every time there's fear every single time it's different it's for different reasons if it was for the same reasons then it wouldn't be scary if there was certainty to it it wouldn't be scary what makes it scary and makes it so that investors sell out is the uncertainty and fear surrounding it that's what alibaba has right now it has fear it has uncertainty and looking back facebook had the same thing but over time that can change and i believe it will change with alibaba like i highlighted alibaba has dropped 53 from its all-time highs late 2020. so a year ago this company was trading at 309 a share and now it's trading at 148 a share so it's fallen by half it's half the price it was late 2020. also keep in mind that alibaba is now trading at the same share price that it was back in 2017. so way back in 2017 you could buy this company for the exact same price it's trading for today now just to give some context and the differences between alibaba and 2017 and alibaba now with the exact same stock price alibaba in 2017 revenued 23 billion dollars that was the total revenue in 2017 in 2020 it was 109 billion dollars alibaba's revenue has gone up roughly five times and the company's trading at the exact same price it was when it was five times lower revenue either investors were incredibly wrong back in 2017 and they're way overpaying for the company they weren't discounting the threat of the chinese government enough and they're correcting that wrong pricing now by pricing it more appropriately now or investors are being incorrect right now pricing the company with a lot of fear and uncertainty that doesn't accurately represent the situation my argument is is that investors were correct in 2017 i think the company was priced fine and i think that they're incredibly incorrect right now i think they're pricing it with far too much of a discount even for the chinese government alibaba is a vastly stronger superior company now than it was in 2017. back in 2018 the second quarter of 2018 so not even going back to 2017 they only had annual active customers of 488 million and i say only because that's a small number compared to what they have currently which is 820 million so they've roughly grown the size of their active user base by double since 2017 but the company is the same price they've grown their revenue 5x but the company's the same price you can go with every metric every part of their company is growing that the company's the same price their operating income has improved their profitability hasn't improved their ebitda growth their free cash flow growth their shares outstanding has largely stayed the same so they're not really diluting investors to attain this growth it's natural growth from one of the highest quality companies in the market so the big question with alibaba remains how big of a threat is the chinese government to the overall growth of this company is a chinese government really going to prevent any investors making money from this company are they going to completely nationalize it and take all the profits and make it so that investors look like fools investing in this company that remains the number one question with alibaba so let's go ahead and get ray dalio's input on the subject this is an interview he did with bloomberg where he's asked specifically about china not alibaba itself but he's asked about china and the government and if the concerns investors are pricing into these stocks are really warranted here's his insight on the subject well you have um daughter and son-in-law in shanghai and you and and so we get living in real time we're living in real time and the more you have contact i think the more you understand it i don't think it's well understood for a long time the the question is how can communism and capitalism coexist that's the riddle you have to answer and he had to answer a while ago and what do these people want at the top and what they um the answer to that riddle was told also by deng xiao ping when he was asked he said it's glorious to be rich and then they asked about capitalism and he says it doesn't matter if it's a black cat or a white cat just as long as it catches mice and so the idea is producing wealth and so capitalism for capitalism yes but he says that it's not well understood so first of all what the mainstream media does in the us is they we have our spin on things i think anybody here someone tell me that the mainstream media in the us is completely honest and transparent and just reports the news as unadulterated as possible i don't believe so i don't think that they're completely transparent or honest i think that personal narrative and and their kind of underlying ideas and perspectives get put into the news and so we don't understand really what's going on in china a lot of times i think we're misled by the media and i think that ray dalio i think in a nice way is trying to say that a lot of the times the american media has a negative spin on everything china does because communism anything that china does it'll be negative even if it's good or bad it doesn't matter because the overarching communism theme is wrapped into that into that news but harry goes on addressing the assertion that things have changed with china over the past year they went from a a half communist country to now full on socialism and communism the redistribution okay so we have four things that are really going on in china if if you understand their intent um uh common prosperity is the word now okay and it has been the objective to raise money and then to to broaden the base of right okay that's common prosperity is a major goal of china what does that sound like in the us and europe common prosperity to me it sounds like equality we want to be equal we want to have more equality we want the wealth gap to be smaller right a lot of the language they use is identical to the west we have the exact same initiatives and overarching goals companies are trying to lower inequality within the us china wants to do the same thing they want common prosperity it's a different way of saying the exact same thing common prosperity so if you look at their tax rates they're lower than the united states if you look at the measures of almost capitalism they have as much capitalism or more capitalism much more so than europe for example and that right there has to be a huge blow to people saying that china is purely socialism they don't have capitalism he just said that the tax rates and the level of capitalism exists they have more capitalism and less government intervention in china than they do in europe let me go back and just play that that little segment there again their tax rates they're lower than the united states if you look at the measures of almost capitalism they have as much capitalism or more capitalism much more so than europe for example and then and now they're in a prospect to broaden that so i think there's a tendency and an understandable tendency to think because they are maoist and capital and and communist that they're going to uh go back to that kind of a thing the then they're not um deng xiaoping excuse me um shishi pink just um for example introduced the newest stock market in beijing he made a point of being the one who introduced the market in beijing to the small and medium-sized enterprises they know that it catches mice and so the issue is that the capitalist is not in control the issue is that there's a system for the whole system and then what they want to do is make sure that um it's not a capitalist driven system so and then there's data control and then and then you have to understand there's micromanagement it's like the kids there's a there's a top down versus bottom up whether you like it or not it's what it is our listeners and uh he highlights a couple other things that they're not driven the same way the capitalism is in the u.s it's a top-down approach there's lots of micro-management and they have a lot more regulation that steers companies in certain directions so it's normal for chinese companies to have members of the government as part of the company that make sure that they're in compliance with everything now he goes on to highlight from a specific investing approach how he would approach these international investments like china you're in other words china is a strategic play you're not going to jump in and out so and and the amount that you're in should be that which you're comfortable with it's the same as an investor it's not smart to sell on the break or buy it it's it's it's a strategic play most investors are very overweight in the united states or other places diversification there's a competition a big competition a war of sorts going on between in technology and so on that diversification put the amount that and the exposure that you want to have there because you have to have places on some money on two chips because there are risks in the united states too so he highlights that china these economies aren't the only place where risk exists there is risk in the us with our technology firms there's certain competitors and risks that they face so have some exposure to china at least what you're willing to tolerate in terms of exposure ray dalio is one member one member of extremely intelligent investors that have been around for a long time they've been through different market cycles this isn't their first rodeo he didn't start investing during 2020 when gamestop blew up on snl this guy has been around for a long time he's extremely knowledgeable and he's not so negative on china like the rest of the mainstream media this is a common trend people that i think are incredibly intelligent and have invested for a very long time have a different perspective than most new investors on reddit and seeking alpha and people that have just gotten into it over the past couple of years i can list off some more examples here here is manish pibrai's portfolio he's a very notable investor he has three main holdings one of them is alibaba he has 21 of his 270 million dollar portfolio invested in alibaba i wonder what he thinks with this current sell-off in alibaba if he's selling out if he's changed his opinion or he's buying more of this company we can look at another example of course charlie munker he's been outspoken with china saying that he does not believe that the chinese government is going to move away from what's been so successful in the past of growing their economy which is allowing these companies to thrive he has a very significant holding in alibaba he has 17.5 percent of his portfolio in this company and he typically buys into companies after a lot of due diligence and with the intention of holding them for a very long time and charlie munger always values safety he always values having a margin of safety charlie munger is another one incredibly uh is successful been in the market for a long time everybody knows him and he's heavily invested in alibaba we can look at thomas russo this is another one that's a very conservative investor he has his main investment which is berkshire then he has mastercard google philip morris and then he has alibaba as a growing investment in his portfolio last quarter he added 30 it'll be very interesting to see out of these notable investors which ones continue to buy more or if they all sell out i'll be very interested to see the portfolio updates of people like thomas russo charlie munger manish pabrai i'll be interested to see the opinions of them as these companies trade down do you think that they're going to sell out and be fearful or do you think they're going to add more shares my opinion is i expect to see a lot more buying of alibaba from these super investors when we get their next quarterly reports when we're able to see that we'll see that they're buying a lot right now that's what i believe will be happening so like i said this is a very polarizing investment there's people online even on youtube channels that talk about how you're you're crazy that you're either ignorant or you don't understand what you own or don't own with the vie structure or what you're investing in with the chinese government being in control in china and then there's people that i think have more experience they have a more level-headed approach to looking at china like charlie munger or tom russo or manish pabrai or ray dalio all of them give their opinions and it's much more neutral than the mainstream media or many new investors in the market and i think i'm in better company following these great investors and at least taking their input and seeing their side of it than just following all the fear and uncertainty when i look at alibaba i see a one-of-a-kind company it is the dominant e-commerce company in china the tailwinds are tremendous for this company the only chance of failure with this investment is if they do delisted i think that that is the one big chance of failure or if they simply nationalize the business so if the chinese government does something that extreme then i'll admit defeat i'll say that i'm wrong with this my assessment was wrong and i'll lose money on this investment but until that happens i'm not too worried about it i have a business that has grown five times as much as in 2017 and it's trading at the exact same price that is the definition of a value play that is the definition of a growth play i have both of them in one stock so i feel very comfortable holding this company as far as i'm concerned nothing has changed with a thesis only the price and eventually prices tend to catch up with the true value of the asset and i think that that will happen over time so that's my thoughts on alibaba i hope you enjoyed this video if you did make sure to subscribe to the channel and i'll see you next time

Channel: Joseph Carlson After Hours

Views: 25,123

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Keywords: The Joseph Carlson Show, investing, stocks, stock market, dividends, portfolio update, m1 finance

Id: jmnEeH1plrY

Length: 21min 28sec (1288 seconds)

Published: Fri Oct 01 2021