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A reader left me a comment asking me to talk to myself on Alibaba as an investment but requested that I do not publish the comment.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

"Noble Group will be worth $7.00 a share."

Reader says...
I followed the call of a famous trader in Singapore and bought Noble in May.

He drew a chart and said it will go up to $7.00.




I am still holding but the price keeps falling. I put in a lot of money. I don't know what to do now.

Should I cut loss?

AK says...
When was the last time I did a TA on Noble Group?

See the blog: HERE.

I always say that TA is about probability and not certainty.





It is too dangerous for me to suggest if you should hold, cut or add.

However, I would suggest that you pick up TA if you want to be a trader.

See recommended books for TA: HERE.

Regular readers know that I used to do quite a bit of trading and I said as much in this year's "Evening with AK and friends".

See the blog: HERE.






If you want to start a zhi char store, make sure you know how to handle a wok.

If you don't know how and pay a shi fu to do it, you are at his mercy.

So, if you want to trade stocks, make sure you know how to read charts. :)




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In case you just dropped in, there was a blog published earlier today:
Investing in high yield Asian bonds.

Olam: Share price up on buy backs.

I have always thought Olam's gearing level quite scary. Then again, it is the same with Noble and Wilmar although not as highly geared as Olam. I was told that their business models are such that high gearing level is nothing to worry about. Indeed, Mr. Market seemed to think so as their share prices were sky high once upon a time.

Gearing is a double edged sword and if a business is able to magnify its returns through gearing, then, higher gearing would intensify the returns many times over. However, in down times, things could turn really ugly. Then again, in the current environment of very low interest rates, borrowers are shouldering much lighter burdens.

When Olam announced that they are buying back shares from the market, my immediate reaction was a positive one. Hey, the management are confident in their own business and are walking the talk. However, when we remember that it still has plenty of debt in its books, it doesn't seem to make much sense anymore.

Kim Eng has this to say:
Share price jumps on buyback mandate. Olam’s share price has jumped 11% since the company announced last Friday that it has commenced a share buyback programme. While such a move is usually a positive sign, the circumstances for Olam seem rather unusual. Fundamentals-wise, other than to deter the short sellers, we do not think it is necessarily an enhancive step for shareholders. Borrowing money to purchase shares. The case for a share buyback is stronger for companies with piles of idle cash coupled with strong operating cash flows. Olam, however, is considered highly leveraged with net gearing of 189% and adjusted net gearing of 42% as at FY6/12. Since listing in 2004, its operating cash flow has been positive only in 2006 and 2009 as funds were needed for expansionary working capital.

Kim Eng has a SELL recommendation on Olam with a TP of $1.43.

Noble Group: Another quick trade.

Technical analysis (TA) is dynamic. Day to day, charts have new information and TA will provide new insights.

Not too long ago, I wondered if Noble Group's share price might hit $1.90. Read blog post here.




If you guess that I must have been waiting to sell at $1.90, you are right.

However, doing a bit of charting last night revealed that we might not see $1.90 although there is still a chance we could.

The declining 20dMA is now at $1.89 while trading volume has dwindled lately.

Today, it hit a high of $1.875 before closing at $1.865, forming a white spinning top (almost) in the process.

There is obviously some struggle between bulls and bears at this level.





Half an hour before the market closed, seeing how $1.875 presented a respectable resistance and is only three bids from $1.89, I decided to divest at $1.87, selling straight instead of queueing at $1.875.

That is 4 bids below $1.89 but it gives me a gross gain of 5% in less than a fortnight.

It seems that I have made another quick trade after the recent one with NOL.

Conditions are not easy for long traders in recent months.






Counter trend trading demands that I stay nimble footed and less greedy.

A 5% gain here and there? Why not?

I am still learning.

Noble Group, NOL and CapitaMalls Asia.

Just a quick look at some charts:

Noble Group's share price formed a bullish engulfing candle on high volume. If we turn on the MA envelope, we see how it touched the lower boundary and bounced off. Stochastics is in the oversold region and could turn up. Could share price rise to $1.90?

NOL's share price formed a white hammer on high volume. Similarly, Stochastics is in the oversold region and could turn up. Could it rise to $1.45?

CapitaMalls Asia. Connecting the lower highs since 6 October 2010 makes me wonder if we could see the downtrend resistance tested again. Likely to be a long drawn process. Will probably have to see gap closing at $1.55 first.

Good luck.

Capitamall may explore purchase of Ion mall next year, CEO says
Tuesday, 19 July 2011

© 2011 - The Edge Singapore

Noble Group, Altius to set up oil seed plant in South Africa: Update
Tuesday, 19 July 2011

© 2011 - The Edge Singapore

Noble Group: Caught a falling dagger?

Today, for the first time ever, I became a shareholder of Noble Group. I will confess that I do not understand the business and that going long here is taking on quite a bit of risk. Then, why did I do it? Let me share with you what's on my mind.

The share price of Noble Group is, undoubtedly, in a downtrend. I drew two trendlines, one connecting the lower highs and one connecting the lower lows. A down channel becomes quite clear. I see the channel support at $1.78 and that explains why I put in a buy order at that price, which was filled in the late afternoon today.

That a big black candle formed on the back of heavy volume is very ominous and it would not surprise me if the share price were to sink even lower next week. So, why take the risk of going long now? Why did I not cancel my buy order? After all, it was only filled late in the afternoon.

Well, the fact that the share price tested channel support alone would not have enticed me to enter. The MACD which looks like it has a nice chance of forming a higher low is an important factor too. Therefore, even if the price were to sink lower, as long as the MACD forms a higher low, we would have a positive divergence.

Am I not pre-empting then? Yes, I am and, yes, I agree that disciplined traders should not do that. I have said before that I am not a good trader and this is still true. After all, there is a chance that the MACD could form a lower low which means no positive divergence.

If the share price were to move higher next week, I would use the declining 20dMA as a guide to determine a price for divestment. Price could move higher to test resistance as provided by the trendline as well. I guess it is up to the individual to decide how much risk he is willing to take and how much gain is enough for him.

In the event that the share price were to move lower, I would not rush to average down my price, I would wait and see how things develop. Losing money in a trade is not as bad as losing our cool because of one.

Charts in brief: 13 Aug 10 (Part 3).

Noble: Looking at Noble's chart, the double top formation is quite obvious. If this is a valid formation, we could possibly see price declining to hit $1.20.  Top at $2.20, neckline at $1.70, target at $1.20.  A scary possibility? Price closed at $1.54, the low formed on 20 May.  Could this hold?  Well, the MFI just dipped into oversold territory.  RSI continues to sink in oversold territory.  OBV shows continuing distribution.  Price could enjoy a brief rebound and should meet with resistance at $1.64 in such an instance.

Noble cut to Hold by DBS Vickers with $1.62 target. DBS Vickers says 2Q10 results dismal, with earnings down 65% on year at US$86.6 million ($118 million).
Friday, 13 August 2010

© 2010 - The Edge Singapore

KGT: I am still interested in collecting some units of KGT.  However, the price refuses to fall below $1.10.  When I first blogged about KGT, it was at $1.06 and I said I would wait for $1.00.  Doesn't seem very probable now. However, I decided to sneak a peek at the charts. 

Well, not much to work on but notice that price has been trading below the 20dMA in recent sessions with a falling MACD. MFI has formed lower highs which suggests a falling demand. The RSI has likewise been falling suggesting increasing selling pressure over time. We could see KGT at under $1.10 again if this keeps up.  Good things come to those who wait?  Of course, if the counter goes CD soon, it could change everything.

Related post:
K-Green Trust: A stable source of passive income.

Noble: Downtrend.

Noble has been in a downtrend since the middle of March. This downtrend is intact.  With MFI forming lower highs, which suggests a lowering demand, and OBV dipping gradually, suggesting consistent distribution, the technical picture is rather negative.  The MACD is in negative territory and has just completed a bearish crossover with the signal line. Momentum is negative and it is not improving.

The counter is nowhere near oversold and price could sink lower if there is no catalyst strong enough to turn market sentiments positive. Price is currently resting on immediate support at  $1.66.  Immediate resistance is at $1.70 as provided by the 20dMA and candlestick resistance. 

Noble to sell coal mine stake to Gloucester, Australian says, for as much as A$300 million ($370 million).
Wednesday, 04 August 2010

© 2010 - The Edge Singapore

Wilmar International

A friend mentioned that he would want to buy some shares of Wilmar International because he is confident that a listing of its China-related operations in Hong Kong will take place and it is just a matter of time.

Wilmar's valuation looks rich to me compared to other palm oil companies like Golden Agriculture. Of course, Wilmar is not a pure palm oil play but most people associate it with crude palm oil. The stock market is not the best place to find rational behaviour, we know.

Let's do a TA. Similar to Noble's chart, the 20wMA pulled away rapidly from the 100wMA. The 20wMA flattened two weeks ago. Compared to Golden Agriculture, which is testing resistance, Wilmar is hugging the flattening 20wMA for dear life as volumes dwindled. If I were to do some crystal ball gazing, this chart shows what Noble's chart might look like in future. For anyone who is thinking of entering, I see $5.54 or so as a fair entry point. It is about a 15% correction from the closing price of $6.43 and it is also a natural candlestick resistance and support level. This is another counter not for the faint hearted.

Noble Group

A friend told me recently that Noble Group was 9c a share in 1999. It closed the 2009 at $3.25. That's a 36x returns over 10 years!!! I've not done any research on any financial engineering the company might have done in the last 10 years. So, this observation might be too simplistic.

Looking at the numbers, I find valuation for Noble rather mind boggling. To buy at the current valuation, one must be extremely optimistic about the future earnings of the company. Well, Jim Rogers thinks that prices of commodities will continue to rise in the years ahead. If we believe him, then, it might be better to buy directly into commodities or companies producing these commodities rather than commodities trading companies. I remember Musicwhiz did some FA on Noble and Olam. So, I shan't go into details here. The link to his blog is in my blogroll. As is my style, if the FA fails, I do not bother to go on to the next step which is to do a TA.

However, what worries me is that even some usually very cautious investors I know are euphoric about Noble. From a TA standpoint, if the trend is not broken, continue riding it. Having said this, Noble's rapid climb in price does not look sustainable. So, I'm doing a TA out of curiosity. The negative divergence between price and volume on the weekly chart is quite plain to see. After breaking multiple wMAs in May, it tested the 100wMA support in July and off it went hugging the upper limits of the Bollinger bands since. The shorter term 20wMA has pulled away from the longer term 100wMA and 200wMA. The spread is now quite susbtantial. Using two sets of Fibo lines, it looks as if the current price of $3.25 is at resistane. A pullback is on the cards but with such positive sentiments bouying the counter, the 20wMA, at $2.70 this week, might just be able to support the price. That would be a 15% pullback. To my friends who are vested, stay vigilant. If the 20wMA breaks, there is quite a fair bit to fall.