Investing in Alibaba and Tencent now.

It is no secret that I spend a lot of my time gaming online.

I have also been buying lots of things online.

I hardly leave my home and, so, I have become even more of a hermit in recent years.

Anyway, with my lifestyle, shouldn't I be interested in Alibaba and Tencent?

Well, on top of them being Chinese, as a retiree who depends on passive income for a living, I find it harder to be interested in them.

However, I am a relatively young retiree. 

So, maybe, same same but different.

I have given it a lot of thought recently and I have decided that I should be at least a little bit interested in having some exposure to Alibaba and Tencent with their prices being where they are.

Not too much exposure though.

Just like adding some black pepper to my soup, powdering my portfolio with some Alibaba and Tencent to give it some pizzazz might not be a bad idea.

Invest in Alibaba because it is the big brother when it comes to online shopping platforms.

Invest in Tencent because it is the big brother when it comes to developing online games.

Of course, they do more than these but I am too lazy to list everything they do.

It is easy to find the information online and anyone who is interested can do a simple search.

Both Alibaba and Tencent are inexpensive for tech stocks if we look at their financial ratios.

Still, cheap could stay cheap as long as Mr. Market lacks confidence or interest in them.

I have not invested in any Chinese companies since China Minzhong donkey years ago.

China Minzhong had a PE ratio of only 3, if I remember correctly.

Chinese banks also look relatively cheap and they pay dividends too.

I think you get the idea.

In one of my blogs on Alibaba, I said:

"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."

See: Invest in Alibaba.

So, since I have decided that I am interested in Alibaba and Tencent, has the dust settled?

Well, it does look like their prices have "bottomed" in the middle of March, recovered and are now consolidating.

It doesn't mean that prices cannot move lower. 

We could even see a retest of the "bottom" formed in March.

I say "bottom" because we wouldn't know that it is the bottom until the downtrend reverses for sure.

Yes, if we zoom out and look at the big picture, the downtrend is still very much intact.

So, for now, we can say prices have found a floor as we cannot be sure they have bottomed.

A floor with a big plunge pool, maybe.

Plunge pool.

Ooh.

Sounds so exciting.

So exciting that some people got a heart attack.

Then, what about double or triple plunge pools?

Alamak, liddat how?

Looking at the moving averages, Alibaba and Tencent are still stuck in a downtrend.

However, if prices were to retest the lows of 15 March, we would probably see strong buying interest.

People who missed the fun of playing in the first plunge pool wouldn't want to miss the fun again.

It is just market psychology at work.

If the buying pressure is strong enough, we could then see a double bottom forming.

Of course, we wouldn't know a double bottom has formed until the trend reverses for sure.

Yes, technical analysis can be pretty irritating.

Although I am interested in Alibaba and Tencent, I am not interested in buying their stocks in HK or the USA.

Why?

AK is lazy.

AK doesn't like "mafan" stuff.

I want to keep things simple and, so, I have decided to gain exposure through an ETF in Singapore, specifically, the Lion-OCBC Securities Hang Seng Tech ETF.

I have hyperlinked the name to the ETF's website to make it easy for interested readers to find out more about the ETF.

Eh, lazy AK not so lazy after all?

No lah.

I was reading about the ETF and have yet to close the tab to the website.

So, might as well.

Don't spoil my reputation for being lazy hor. ;p

The ETF is listed on the SGX and I don't have to worry about exchange rates, having a custodian account in another country and paying a custodian fee for each counter invested.

The ETF also has the advantage of being diversified and would give me exposure to some other Chinese businesses that I know like Lenovo, JD.com and Xiaomi too.

There is a management fee as there will be some expenses but they aren't sky high. 

Yes, I am not as tight fisted with money as I once was and I feel that the fee is a small price to pay for the convenience. 

Having things easier for me promotes peace of mind which is priceless.

So, maybe, this ETF is better for my heart in more ways than one.

Source: Lion-OCBC Securities Hang Seng Tech ETF.

This ETF is about growth and does not pay a dividend.

Consistent with my asset allocation pyramid, investments which are purely for growth will together form a much smaller percentage of my entire portfolio.

S = speculative positions.

Since I don't have any investment that is purely for growth other than this ETF for now, I could possibly put more money into it if the unit price plunges again (and again.) 

Even so, the ETF should still form a very small percentage of my portfolio, all else being equal.

Maybe, just 1% of my portfolio for a start and I feel a 5% cap is probably a good idea.

As it now stands, I still have some way to go before it gets to 1%.

Yes, I being very cautious on this adventure.

Like with all adventures, no matter how well prepared we are, we must be mentally prepared for the worst while we hope for the best.

Some people compare Alibaba and Tencent to Amazon, for example, and if they are right, we could see a fivefold or even tenfold return in the next decade or two.

If this happens, then, even at 1% of my portfolio, in absolute dollar terms, it would be pretty amazing.

So, how likely is this?

To be honest, I would be quite happy if the investment sees a threefold increase in market value in the next decade.

Some might say I am being pessimistic.

Alamak, if I am pessimistic, I wouldn't have put down any money.

Long time readers might remember that I said on many occasions that we want to stay pragmatic and not be optimistic nor pessimistic.

Easy to say, of course.

Getting some exposure to Chinese tech at this point is me trying to be pragmatic.

It is so much fun to make predictions but I remind myself of some facts to stay grounded.

China is not the USA.

The USA, for example, does not care about "common prosperity."

Anyway, unless coming out of retirement and rejoining the workforce is something I am willing to consider, I shouldn't be too adventurous when it comes to investments.

This ETF is probably not a good fit for anyone who is a purist investor for income.

It is probably not a good fit for anyone who does not have the stomach for price volatility either.

Think carefully and don't anyhow hoot.

If AK can do it, so can you but should you?

References:
1. Cut loss on Alibaba or buy more?

2. Investing with some common sense.

Recently published:
Investment in QAF is larger now.

Investment in QAF is larger now.

I have been a shareholder of QAF for donkey years and I remember the very first time I bought some of its stock was at about 60 cents a share.

Over the years, I enjoyed free Gardenia bread with the dividends I received.

The last time I blogged about QAF was in 3Q 2018 although the last time I commented about QAF was in February 2022.

For both the blog and comments, please see:

3Q 2018 passive income: QAF.

QAF was one of my largest investments by market value at one point although it was a rather small largest investment like my investment in Sabana REIT is today.

See:
Largest investments updated 2022.

So, when was QAF one of my largest investments by market value?

It was back in 2017 when it was trading at more than $1.40 a share.

As I believed QAF was worth much more, I added to my investment back then, averaging up. 

The highest price I paid was $1.42 a share.

Regular readers know I don't usually bother to calculate average prices of my positions since as an investor for income, my favorite holding period is forever and average prices aren't very meaningful to me.

As long as I feel that I have paid a fair price, it is good enough for me.

However, for this blog, I decided to calculate the average price because it would help to show how investing in bona fide income producing assets which pay meaningful dividends is less problematic even if we have paid a higher price.

My average price after averaging up was about $1.02 a share which meant that I have been nursing a paper loss since then although if I were to take into consideration the dividends received, not too bad.

The longer I stay invested, the safer it becomes.

Averaging up isn't always wrong but, of course, Mr. Market is always right.

So, through this lens, I was wrong to average up in this case.

Very cham liddat. (TmT)

Of course, regular readers know that during the COVID-19 induced bear market, I was adding to some of my investments as the dust started to settle.

Most of my war chest went to investing in the local banks and IREIT Global. 

Then, later on, after the dust settled, Sabana REIT.

I had a list of businesses I would have liked to significantly increase exposure to but I didn't have unlimited firepower although I did manage to nibble at some of them.

I had to prioritize those businesses which I thought were more interesting.

The purchases involving UOB, IREIT Global and Sabana REIT were all six figure sums and were relatively large by my standards.

Mostly exhausted after those purchases, my war chest needed time to recover.

With a bigger cash pile in 2022, I decided to add to my investment in Centurion Corporation towards the end of 1Q as its stock price languished.

Then, looking around more recently, I decided to add to my investment in QAF Limited.

Back in 2021, QAF was already trading at 90c to $1 a share.

Yes, I should have bought some in 1H 2020 but hindsight is, of course, perfect and mostly useless.

Anyway, with the price of its stock languishing, I decided to add to my investment quite recently.

QAF's latest numbers shows a much stronger balance sheet which I like.

Source: QAF Limited.

With a stronger balance sheet, QAF will not have to rely on debt too much to grow organically.

I continue to believe that QAF is a business that is recession proof and it could even benefit from an inflationary environment.

Inflation is, of course, a hot topic.

QAF had a difficult 2021 and with higher prices of wheat and energy likely to be persistent in 2022, it is easy to understand why Mr. Market is feeling somewhat pessimistic.

However, looking forward, QAF should eventually be able to pass on the increase in business costs to consumers as demand for its products should be relatively inelastic and demand could even strengthen during hard times.

Of course, I say "eventually" because if inflationary pressure should strengthen too much too quickly, things could get hairy in the shorter term.

Still, I doubt most people would stop buying their favorite loaf of quality bread just because the price has gone up by 20 or 30 cents or even a dollar.

In fact, I paid a higher price for my loaf of Gardenia low GI soft grain bread today.

Anyway, is QAF one of my largest investments now?

Even after recently adding to my investment, unless its share price goes back to $1.40 or so a share, QAF is still one of my larger smaller investments.

Of course, I could add more aggressively to my investment in QAF and make it one of my largest investments now.

However, with a war chest that is still recovering from big purchases in the last bear market, I think pacing myself is probably a good idea.

My war chest, after all, is not growing as quickly as it was able to when I was still gainfully employed so many years ago as much of my passive income is used to meet financial obligations in my retirement.

My bowling ball that sometimes cosplays as a crystal ball agrees.

Reference:
Largest investments in 2017.