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Cut loss on Alibaba or buy more for a Merry Christmas?

Wednesday, December 22, 2021

I did not plan on blogging again until the new year when I would share my 4Q 2021 results.

I would also probably have blogs about the CPF sometime in January.

However, the reader who wrote to me about his purchase of Alibaba shares at $220 a share after reading blogs by a local blogger left me another comment.

For those who are clueless as to what I am talking about, read:

Invest in Alibaba Group? High risk, high reward?

Anyway, after reading the reader's latest comment, the blogging bug bit me and the result is this blog.

Alibaba's share price continues its slide and the downtrend is pretty much intact.

It should be obvious even to those who are not technically inclined that the downtrend is pretty persistent.

Many have been cut very badly by falling knives and some have had their fingers or hands cut off.

There are many who are still holding on in the hope of a reversal so that they could make a lot of money eventually.

However, they should bear in mind that there are many stale bulls who are waiting for a lift in prices so that they could sell to break even or to reduce their losses.

It is only reasonable to expect some strong resistance or those holding on could be setting themselves up for more disappointment.

So, investing in Alibaba Group now is to invest in a downtrend and to hope for a reversal that is likely to be full of obstacles.

It is definitely not for the faint hearted and those who do not have deep pockets.

This is especially the case when Alibaba does not pay dividends.

So, to say nothing of the capital loss, the opportunity cost for investing in Alibaba is pretty high.

Alibaba's investors are not being paid to wait for things to get better.

What to do?

If the ever widening paper loss is making us lose sleep, it is probably a good idea to reduce exposure.

Using money we cannot afford to lose or borrowing money to invest in such a situation is probably a sure way to get insomnia.

Those with anger management issues could even see familial and social ties affected.

What about those who have used money they can afford to lose?

Well, they are more fortunate because they only have to ask if they are willing to lose the money invested in the worst case scenario? 

Now, to answer the reader's question in his latest comment, whether to cut loss now or to hold on, is there another question he should ask?

Yes, there is one more.

If he did not invest in Alibaba Group at $220 a share so many months ago, would he invest in Alibaba Group at $117 a share today?

Why should he cut loss now if the answer is "yes?"

Of course, in such a case, it would mean that the time to cut loss has come and gone for him.

If he wouldn't invest in Alibaba Group even at $117 today, it probably means that his opinion of the investment has shifted so much that a much lower price is needed to entice him.

In such a case, cutting loss and buying again when a reversal is in place might be a better idea than simply holding on and possibly losing his mind.

We should bear in mind that share prices flow down a river of hope in a downtrend.

Low could go lower.

The time to buy is probably when share prices move lower in an uptrend (i.e. buying the dips) or even when share prices test supports in a rangebound situation.

Investing in Alibaba Group now is to buy the downtrend but if you are a billionaire like Charlie Munger or if you are investing with only a small fraction of the money you can afford to lose, you probably don't have much to worry about.

Having said this, we can never make all the money in the world and there are more important things in life than money.

Peace of mind is priceless.

I will end this blog with a screenshot of my house in Black Desert Online which has been nicely decorated for Christmas.

Merry Christmas!


Rellangis said...

Hi, what do you think of Wilmar? Had entered at $4.40 and now it is below $4... is it a good time to accumulate some more to keep ?

AK71 said...

Hi Rellangis,

Someone just asked me a similar question yesterday and you will find our conversation in the comments section of this blog:
Largest investments updated.

garudadri said...

Dear AK
As you might recollect, I had mentioned Wilmar and ST Engineering as prominent stocks on my watch list. I saw the question above regarding Wilmar. One area of concern is the fundamental strength and weakness of the underlying three commodities that are unpredictable in the long run
Palm oil, Sugar and Soya. The price fall is reflecting the current strength in the commodities, especially palm oil. I expect these to ease after the pandemic and the end product demand for Wilmar’s products to improve further. To me, this stock is a buy but perhaps to be accumulated slowly and steadily
The dividends are attractive but no guarantees
Under 4$ is good value IMHO

PassPACES Medical said...

I will never have the question " Should I buy more? " in index fund investing. Therefore for me I buy more if my index funds drop in price. I would suggest readers to invest in ETFs/ index funds rather than individual stocks

AK71 said...

Hi Garudadri,

I would point readers who are interested in Wilmar to my reply in the link I provided to the comment before yours.

A good portion of Wilmar's fortune is linked to the trading of commodities but much of their money is also made in the distribution of consumables and staples.

So, although earnings will be still be affected by the cyclical nature of commodities, the magnitude is lessened by their distribution business.

Much of Wilmar's value is still locked up in subsidiaries and joint ventures.

The IPO of Yihai Kerry Arawana which offered a very small percentage of the business to the public was only the tip of the iceberg.

I have said this before in past blogs but investors in Wilmar must be of the patient variety.

Anyway, there is some pretty deep value in Wilmar and I like to think that patience will be rewarded.

Of course, if we are traders, then, we would be more interested in the short term price movement of the common stock rather than the value the business offers at any price.

I will pull up an older blog of mine which explained why I accumulated more shares of Wilmar rather than cutting losses back in 2018:
3Q 2018 passive income: Wilmar.

The investment thesis is probably still intact. :)

AK71 said...

Hi PPMed,

There are so many ETFs and index funds available.

Investors should still know what they are investing in and if things have changed, perhaps, so should their capital allocation.

So, it would be too simplistic to say only buy ETFs/index funds and just buy more if the price drops.

What about people who put money in LION-OCBC Hang Seng Tech ETF, for example?

Should those investors have bought more every month this year?

Having said this, ETFs/index funds are valid considerations when it comes to wealth building.

garudadri said...

Dear AK
Thanks for the links to your old posts on Wilmar. Much appreciated.
I concur with your views on ETF investing. I do invest in ETF- both core as well as sectoral and overall it has worked out but modest and steady returns. The important bit is it is long term.
I am invested across geographies in SG, UK, India and sectorally in the US
ETF investments are good as long as you are prepared to persevere for at least a 3-5 year period but although passive by definition, needs active monitoring, especially in sectoral ETF investing
Our ES3 is lethargic but saved by the 3 banks. Unfortunately, there are big laggards as well that negate the benefits offered by the 3 banks. Sadly, this will ensure that ES3 will underperform. However, it is traceable. I entered under average 2.80-2.90 last year and divested half my holdings at around 3.15-3.20. Will sell the rest at 3.40 plus. For that, we need the three banks to appreciate by 15-20% and the rest of the 27 overall hold up
A core and satellite approach is workable with ETF being core and individual equities as the satellite portfolio of vice versatile, depending on the investors temperament, risk tolerance and expectations

AK71 said...

Hi Garudadri,

Thank you for the very thoughtful comment.

I am sure that it will provide readers who are interested in putting money in ETFs some food for thought.

Yes, when we put money in ETFs, we are getting baskets of the good, the mediocre and, sometimes, the bad. ;)

Have to know what we are putting our money in and keep ourselves updated. :)

foolish chameleon said...

what is your wilmar's avg price =)

AK71 said...

Hi fc,

You know I don't care to share such information. ;p

Honestly, I don't remember exactly but it is probably in the mid $3.XX. :)

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