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

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!

Related post:
Investing with some common sense.

Invest in Alibaba Group? High risk, high reward? (Updated on 3 Dec 21.)

A reader left me a comment asking me to talk to myself on Alibaba as an investment but requested that I do not publish the comment.

Apparently, he followed the advice of a local blogger and got it at a share price of $220 and is now very worried especially after reading in the news that Temasek Holdings has started trimming their stake.

Article from The Business Times: HERE. 

The reader told me the name of the blog and because I know the blogger he mentioned, I went and took a look. 

I had to ascertain if the blogger indeed advised his readers to buy into Alibaba.

After looking at the blogs, I do not think the blogger meant to push readers to buy shares of Alibaba but one blog title went "If you have not bought a position in Alibaba, NOW is the right time to do so."

Yes, all 3 letters of the word "now" are in caps.

That was back in July this year and I see why it could easily be interpreted as investment advice to his readers.

I haven't blogged about Alibaba because I don't really have an interest in Chinese companies.

OK, I did mention Alibaba in a blog a couple of months ago in September and if you are interested, read: 

"Investing with some common sense for peace of mind."

I haven't invested in a Chinese company since China Minzhong and readers who have been following my blog for a long time might remember the name.

Newer readers might be interested in this blog: 

"How to make recovering from investment losses easier?"

The blog isn't just about China Minzhong and, so, it should be an interesting read for most.

To the reader who wrote to me about following the blogger and investing in Alibaba, I can only say that all of us should have our own plan and not just ride on someone else's coattail.

The blogger could have vastly different circumstances, risk appetite and even goals compared to his readers.

Without a thorough understanding of the blogger and checking to see that we are wearing the same shoes as him, it would be very hard to stomach paper losses especially big ones.

Why is this so?

Well, it is because we would be going in with only the thought (or dream) of making money.

So, when we lose money instead, we get hit and it could hit very hard for some.

For example, another reader followed a famous local trader and bought into Noble Group a few years ago.

What happened?

See: 

Noble Group will be worth $7.00 a share.

In that blog, I said that if we wanted to own a zhi char store, we must know how to handle a wok.

Rely on someone else to do the work and we are at his mercy.

So, how do we prevent ourselves from getting into a situation like the reader who wrote to me about Alibaba has found himself in?

Of course, some might also be interested on when might be a better time to invest in Alibaba?

Read the blogs which I have linked earlier in this blog and you will have an idea.

Peace of mind is priceless and it is not something to gamble away.

When people say "high risk, high reward," we have to pay more attention to "high risk" and what it means if things go wrong.

Focus on "high reward" instead and money might not be the only thing we lose.

Of course, AK is only talking to himself like the crazy fellow that he is, as usual.

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UPDATE: 3rd December 2021.

For those inclined towards Technical Analysis, remember that the trend is our friend.

Don't fight the trend.

I waited for the dust to settle during the last bear market and for share prices to find a bottom before increasing my investment in the local banks.

If I were interested in investing in Alibaba, I would do the same.

Related posts:

1. To retire by 45, have a plan.

2. Investors eat crusty bread with ink slowly for peace of mind.
3. My investment portfolio or investment philosophy?