BABA profit down 87%

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Yesterdaysnews
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BABA profit down 87%

Post by Yesterdaysnews »

Not going to stray into politics but BABA profit crushed by the government over there - any opinions? To me, political risk is underestimated in Intl investing.
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Re: BABA profit down 87%

Post by jebmke »

sounds like you shouldn't invest in international, then.
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Re: BABA profit down 87%

Post by EddyB »

Yesterdaysnews wrote: Thu Nov 18, 2021 10:27 am Not going to stray into politics but BABA profit crushed by the government over there - any opinions? To me, political risk is underestimated in Intl investing.
It's talked about quite a bit in respect of "international" (meaning ex-US) investing. I wonder if it's underestimated in respect of US investing.
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Re: BABA profit down 87%

Post by minimalistmarc »

Yesterdaysnews wrote: Thu Nov 18, 2021 10:27 am Not going to stray into politics but BABA profit crushed by the government over there - any opinions? To me, political risk is underestimated in Intl investing.
This is the risk of stock picking in general. Happens all the time with individual stocks.
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Re: BABA profit down 87%

Post by illumination »

I actually had a small position in Alibaba a while ago and then I saw that film "The China Hustle" and basically decided I didn't want anything to do with investing in China. It almost seems built to fleece outside investors with the government's blessing.

It not like doing business in the US. Alibaba is maybe the largest corporation in China and someone can just snap their finger and make it go away. Including key people that go "missing" like Jack Ma. You're not just dealing with normal business cycles when you invest in China.
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Re: BABA profit down 87%

Post by Robot Monster »

BlackRock actually upgraded Chinese equities to overweight "as we see a gradual dovish shift in monetary and fiscal policy in response to the cyclical slowdown and anticipate that the regulatory clampdown will become less intense." link


In full disclosure, I have approximately invested 1% of my total portfolio in Chinese equities.
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Re: BABA profit down 87%

Post by nisiprius »

It's difficult for me to imagine any portfolio even roughly in tune with the Bogleheads' Investment Philosophy in which what happens to Alibaba would be of serious concern. It can't be if you invest in any kind of reasonably broad, diversified mutual funds--not even necessarily total market index funds.

As of 10/31/2021, it represents about 0.37% of the total market value of the Vanguard Total World Stock Index EFT and fund.

Image

Alibaba is about 0.37% of the world's stocks. It can go to zero tomorrow, and someone holding $100,000 of Total World, or roughly equal amounts of Total [US] Stock and Total International, would lose $370.

My total stock holdings go up and down more than that almost every day.

Alibaba is 3.53% of VWO, the Vanguard Emerging Markets Stock Index Fund. In order to get Alibaba up to 1% of stocks--about the typical daily volatility of VT--you would need to be putting about a third of your stock portfolio into emerging markets--a heavy overweight.

In order for BABA to be a worry, you would either need to be speculating in individual stocks, or in highly concentrated thematic ETFs.

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Re: BABA profit down 87%

Post by Nathan Drake »

If China does things that dissuade capital over time they will shrink in relation to other countries. This is a natural rebalancing no different than when an individual stock in your portfolio goes out of favor.

It’s not a reason to avoid them, the risks are priced in to the degree the market understands those risks
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Re: BABA profit down 87%

Post by arcticpineapplecorp. »

nisiprius wrote: Thu Nov 18, 2021 12:17 pm Alibaba is about 0.37% of the world's stocks. It can go to zero tomorrow, and someone holding $100,000 of Total World, or roughly equal amounts of Total [US] Stock and Total International, would lose $370.
This, and unless you are 100% in stocks, then if you hold bonds (which the 3 fund portfolio recommends) then your overall decline would be even less than 0.37% depending on how much of your portfolio is NOT in stocks.
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Re: BABA profit down 87%

Post by crystalbank »

nisiprius wrote: Thu Nov 18, 2021 12:17 pm It's difficult for me to imagine any portfolio even roughly in tune with the Bogleheads' Investment Philosophy in which what happens to Alibaba would be of serious concern. It can't be if you invest in any kind of reasonably broad, diversified mutual funds--not even necessarily total market index funds.

As of 10/31/2021, it represents about 0.37% of the total market value of the Vanguard Total World Stock Index EFT and fund.

Image

Alibaba is about 0.37% of the world's stocks. It can go to zero tomorrow, and someone holding $100,000 of Total World, or roughly equal amounts of Total [US] Stock and Total International, would lose $370.

My total stock holdings go up and down more than that almost every day.

Alibaba is 3.53% of VWO, the Vanguard Emerging Markets Stock Index Fund. In order to get Alibaba up to 1% of stocks--about the typical daily volatility of VT--you would need to be putting about a third of your stock portfolio into emerging markets--a heavy overweight.

In order for BABA to be a worry, you would either need to be speculating in individual stocks, or in highly concentrated thematic ETFs.

"You can't see the forest for the trees." Financial news spends most of its time zooming in on trees.
But if BABA really goes to zero due to political factors, doesn't it also change the valuations of equities from China altogether? So probably more than $370 if you have $100,000 invested in Total World.
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Re: BABA profit down 87%

Post by Impatience »

International investing is fraught with political and governance risk. They have no controls or protections in place and they sure don’t care about some US investor’s well-being whether it’s China or any other country that isn’t maybe in the EU. Buyer beware.
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Re: BABA profit down 87%

Post by nisiprius »

crystalbank wrote: Thu Nov 18, 2021 1:40 pm
nisiprius wrote: Thu Nov 18, 2021 12:17 pm ...Alibaba is about 0.37% of the world's stocks. It can go to zero tomorrow, and someone holding $100,000 of Total World, or roughly equal amounts of Total [US] Stock and Total International, would lose $370.

My total stock holdings go up and down more than that almost every day...
But if BABA really goes to zero due to political factors, doesn't it also change the valuations of equities from China altogether? So probably more than $370 if you have $100,000 invested in Total World.
Sure, although it's hard to put numbers on anything like that. But, sure, more than $370 if it's a symptom of a wider contagion.

But if Alibaba went to zero tomorrow and every other Chinese stock went to zero with it, all of China is 3.7% of Total World.

Image

So if every stock in China went to zero, we are talking about a -3.7% loss. $3,700.

That doesn't happen every day. That's a really bad day.

But it does happen almost every year.

VT lost -22% in 2020. Going to the link and running my mouse along the chart, if I've counted right, VT has experienced losses of more than -3.7% about nine times since 2009.

Source

Image

Think what you like about BABA. Think what you like about China. Gyrations in their stock doesn't, in itself, pose any existential threat to an investor in a fund like Vanguard Total World Index, or Vanguard Total International Index, (or Fidelity Total International Index, or iShares MSCI World, or iShares MSCI International, etc. etc.)
Last edited by nisiprius on Thu Nov 18, 2021 2:30 pm, edited 3 times in total.
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Re: BABA profit down 87%

Post by marcopolo »

Nathan Drake wrote: Thu Nov 18, 2021 12:24 pm If China does things that dissuade capital over time they will shrink in relation to other countries. This is a natural rebalancing no different than when an individual stock in your portfolio goes out of favor.

It’s not a reason to avoid them, the risks are priced in to the degree the market understands those risks
This seems counter to your usual posts about how overvalued US TSM is, and how the opportunities are in EM.
If the market already has the information and has priced that in, then how can some markets be overvalued and other be bargains.

Or, are you suggesting that you have some special ability to understand those risks better than the market?
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Re: BABA profit down 87%

Post by Nathan Drake »

marcopolo wrote: Thu Nov 18, 2021 2:27 pm
Nathan Drake wrote: Thu Nov 18, 2021 12:24 pm If China does things that dissuade capital over time they will shrink in relation to other countries. This is a natural rebalancing no different than when an individual stock in your portfolio goes out of favor.

It’s not a reason to avoid them, the risks are priced in to the degree the market understands those risks
This seems counter to your usual posts about how overvalued US TSM is, and how the opportunities are in EM.
If the market already has the information and has priced that in, then how can some markets be overvalued and other be bargains.

Or, are you suggesting that you have some special ability to understand those risks better than the market?
If valuations lower to reflect increasing market perceived risk of a region, the cost of capital and therefore expected returns are higher.

There is an intrinsic relationship between valuation and risk. All else being equal, if two funds have equal earnings but I paid less for those earnings with one fund, I receive a higher return assuming no delta in valuation changes.

EM valuations are already dirt cheap, their economies are growing faster, and they feature better demographics, but there’s more political instability. This is par for the course with EM. Historically, it’s been the highest returning asset class because it features higher risks.
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Re: BABA profit down 87%

Post by HomerJ »

marcopolo wrote: Thu Nov 18, 2021 2:27 pm
Nathan Drake wrote: Thu Nov 18, 2021 12:24 pm If China does things that dissuade capital over time they will shrink in relation to other countries. This is a natural rebalancing no different than when an individual stock in your portfolio goes out of favor.

It’s not a reason to avoid them, the risks are priced in to the degree the market understands those risks
This seems counter to your usual posts about how overvalued US TSM is, and how the opportunities are in EM.
If the market already has the information and has priced that in, then how can some markets be overvalued and other be bargains.

Or, are you suggesting that you have some special ability to understand those risks better than the market?
Good point. The valuations of International may be lower BECAUSE of the International risk.

It's definitely not correct to compare valuations in a foreign country to U.S. historical valuations.

"oh, CAPE of 16 is the historical average in the U.S., and Russia is at 8! It must be a good buy!"

More likely, Russia is at 8 because the extra risks are priced in by the market.
Last edited by HomerJ on Thu Nov 18, 2021 2:43 pm, edited 1 time in total.
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Re: BABA profit down 87%

Post by marcopolo »

Nathan Drake wrote: Thu Nov 18, 2021 2:34 pm
marcopolo wrote: Thu Nov 18, 2021 2:27 pm
Nathan Drake wrote: Thu Nov 18, 2021 12:24 pm If China does things that dissuade capital over time they will shrink in relation to other countries. This is a natural rebalancing no different than when an individual stock in your portfolio goes out of favor.

It’s not a reason to avoid them, the risks are priced in to the degree the market understands those risks
This seems counter to your usual posts about how overvalued US TSM is, and how the opportunities are in EM.
If the market already has the information and has priced that in, then how can some markets be overvalued and other be bargains.

Or, are you suggesting that you have some special ability to understand those risks better than the market?
If valuations lower to reflect increasing market perceived risk of a region, the cost of capital and therefore expected returns are higher.

There is an intrinsic relationship between valuation and risk. All else being equal, if two funds have equal earnings but I paid less for those earnings with one fund, I receive a higher return assuming no delta in valuation changes.

EM valuations are already dirt cheap, their economies are growing faster, and they feature better demographics, but there’s more political instability. This is par for the course with EM. Historically, it’s been the highest returning asset class because it features higher risks.
The market knows all that. If EM is believed to have better growth potential, at the same risk, then it would be currently priced higher. They are dirt cheap because the market perceives either more risk, or slower growth.
So, yes, you might capture better returns by tilting to EM, but you are doing so by taking on more risk, not less. There is no free lunch.

Or, you are betting that you know more than the market does, and are attempting to steal their lunch.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: BABA profit down 87%

Post by Nathan Drake »

marcopolo wrote: Thu Nov 18, 2021 2:40 pm
Nathan Drake wrote: Thu Nov 18, 2021 2:34 pm
marcopolo wrote: Thu Nov 18, 2021 2:27 pm
Nathan Drake wrote: Thu Nov 18, 2021 12:24 pm If China does things that dissuade capital over time they will shrink in relation to other countries. This is a natural rebalancing no different than when an individual stock in your portfolio goes out of favor.

It’s not a reason to avoid them, the risks are priced in to the degree the market understands those risks
This seems counter to your usual posts about how overvalued US TSM is, and how the opportunities are in EM.
If the market already has the information and has priced that in, then how can some markets be overvalued and other be bargains.

Or, are you suggesting that you have some special ability to understand those risks better than the market?
If valuations lower to reflect increasing market perceived risk of a region, the cost of capital and therefore expected returns are higher.

There is an intrinsic relationship between valuation and risk. All else being equal, if two funds have equal earnings but I paid less for those earnings with one fund, I receive a higher return assuming no delta in valuation changes.

EM valuations are already dirt cheap, their economies are growing faster, and they feature better demographics, but there’s more political instability. This is par for the course with EM. Historically, it’s been the highest returning asset class because it features higher risks.
The market knows all that. If EM is believed to have better growth potential, at the same risk, then it would be currently priced higher. They are dirt cheap because the market perceives either more risk, or slower growth.
So, yes, you might capture better returns by tilting to EM, but you are doing so by taking on more risk, not less. There is no free lunch.

Or, you are betting that you know more than the market does, and are stealing their lunch.
I never claimed it was a free lunch, though I suspect those that believe US stocks always outperform no matter the price they pay for them are falsely believing in some notion of a free lunch for that asset class. Higher valuations are the market pricing in less risks and therefore expected returns lower.

I invest in EM precisely because it diversifies risk and has a larger expected return, acknowledging that there are greater risks.
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Re: BABA profit down 87%

Post by arcticpineapplecorp. »

Yesterdaysnews wrote: Thu Nov 18, 2021 10:27 am Not going to stray into politics but BABA profit crushed by the government over there - any opinions? To me, political risk is underestimated in Intl investing.
was this something that happened recently because when i do a search for alibaba profit down 87% the only thing I see is a link to this bogleheads post we're currently reading.

i know baba has had troubles due to politics, but hasn't this been going on for about a year now?

can you provide a current link showing baba profit is down 87% or has this already been known by the market, but just discovered by you?
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Re: BABA profit down 87%

Post by pseudoiterative »

Yesterdaysnews wrote: Thu Nov 18, 2021 10:27 am political risk is underestimated in Intl investing.
It seems a bit extreme to tar all "international" investments with the same brush. If you specifically choose to invest money in BABA as a foreign investor, presumably you've already done your due diligence and already know:
  • you're not actually buying ownership in Alibaba, you're buying ownership in a VIE
  • as a small foreign investor in China you have relatively few rights, and the party doesn't have any particular interest in keeping you content if the thing you have invested in turns out to be a scam or is expropriated by the state. Whereas the party is reasonably keen to ensure that China's domestic retail investors are content. Domestic stability!
  • about the whole fiasco in 2010-2011 where Jack Ma removed Alipay from Alibaba to an entity he controlled, without compensating Aliababa shareholders ( https://en.wikipedia.org/wiki/Alipay#History )
In contrast there are plenty of other boring public companies in many countries around the world that offer foreign investors relatively high levels of rights and protection, that do not involve VIEs in tax havens, have more transparent audit requirements, aren't run by management who have a history of stripping assets from the company without the approval of the company's investors and board!

illumination wrote: Thu Nov 18, 2021 11:03 am I actually had a small position in Alibaba a while ago and then I saw that film "The China Hustle" and basically decided I didn't want anything to do with investing in China. It almost seems built to fleece outside investors with the government's blessing.
Exactly! I haven't watched the China Hustle but the general topic of a lot of completely fraudulent chinese companies being listed on US exchanges through reverse mergers is a recurring topic on the wolfpack research podcast E.g. check out episode 3.
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Re: BABA profit down 87%

Post by arcticpineapplecorp. »

crystalbank wrote: Thu Nov 18, 2021 1:40 pm But if BABA really goes to zero due to political factors, doesn't it also change the valuations of equities from China altogether? So probably more than $370 if you have $100,000 invested in Total World.
when value is destroyed by one company, isn't it possible that capital can flow to other companies that could be creating value?

there were about 6 or 7 dominant market cap companies in 1994:
General Motors
Ford
Walmart
Exxon
General Electric
IBM
Citigroup

Oh how that changed over the next 24 years:

24 Years of Big Company Change

yet the market overall can still go up regardless of the individual components.

Over that same time period 1994-2018 how would your total stock market have done?

Image

you would have had 8.6 times your original investment even though half of those big companies were much smaller (IBM wasn't even on the list in 2018, fell off right before the end of the year).
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Re: BABA profit down 87%

Post by crystalbank »

pseudoiterative wrote: Thu Nov 18, 2021 3:06 pm
Yesterdaysnews wrote: Thu Nov 18, 2021 10:27 am political risk is underestimated in Intl investing.
It seems a bit extreme to tar all "international" investments with the same brush. If you specifically choose to invest money in BABA as a foreign investor, presumably you've already done your due diligence and already know:
  • you're not actually buying ownership in Alibaba, you're buying ownership in a VIE
  • as a small foreign investor in China you have relatively few rights, and the party doesn't have any particular interest in keeping you content if the thing you have invested in turns out to be a scam or is expropriated by the state. Whereas the party is reasonably keen to ensure that China's domestic retail investors are content. Domestic stability!
  • about the whole fiasco in 2010-2011 where Jack Ma removed Alipay from Alibaba to an entity he controlled, without compensating Aliababa shareholders ( https://en.wikipedia.org/wiki/Alipay#History )
In contrast there are plenty of other boring public companies in many countries around the world that offer foreign investors relatively high levels of rights and protection, that do not involve VIEs in tax havens, have more transparent audit requirements, aren't run by management who have a history of stripping assets from the company without the approval of the company's investors and board!

illumination wrote: Thu Nov 18, 2021 11:03 am I actually had a small position in Alibaba a while ago and then I saw that film "The China Hustle" and basically decided I didn't want anything to do with investing in China. It almost seems built to fleece outside investors with the government's blessing.
Exactly! I haven't watched the China Hustle but the general topic of a lot of completely fraudulent chinese companies being listed on US exchanges through reverse mergers is a recurring topic on the wolfpack research podcast E.g. check out episode 3.
Thanks for this dose of reality. I'm always surprised when mainstream financial elite (think Charlie Munger, Ray Dalio etc) always downplay the risk of investing in Chinese companies. I think no one can deny that success of Alibaba and other Chinese companies and they sure seem like a great investment opportunity. But the shenanigans of BABA listing should be a cautionary tale.
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Re: BABA profit down 87%

Post by Nathan Drake »

crystalbank wrote: Thu Nov 18, 2021 3:30 pm
pseudoiterative wrote: Thu Nov 18, 2021 3:06 pm
Yesterdaysnews wrote: Thu Nov 18, 2021 10:27 am political risk is underestimated in Intl investing.
It seems a bit extreme to tar all "international" investments with the same brush. If you specifically choose to invest money in BABA as a foreign investor, presumably you've already done your due diligence and already know:
  • you're not actually buying ownership in Alibaba, you're buying ownership in a VIE
  • as a small foreign investor in China you have relatively few rights, and the party doesn't have any particular interest in keeping you content if the thing you have invested in turns out to be a scam or is expropriated by the state. Whereas the party is reasonably keen to ensure that China's domestic retail investors are content. Domestic stability!
  • about the whole fiasco in 2010-2011 where Jack Ma removed Alipay from Alibaba to an entity he controlled, without compensating Aliababa shareholders ( https://en.wikipedia.org/wiki/Alipay#History )
In contrast there are plenty of other boring public companies in many countries around the world that offer foreign investors relatively high levels of rights and protection, that do not involve VIEs in tax havens, have more transparent audit requirements, aren't run by management who have a history of stripping assets from the company without the approval of the company's investors and board!

illumination wrote: Thu Nov 18, 2021 11:03 am I actually had a small position in Alibaba a while ago and then I saw that film "The China Hustle" and basically decided I didn't want anything to do with investing in China. It almost seems built to fleece outside investors with the government's blessing.
Exactly! I haven't watched the China Hustle but the general topic of a lot of completely fraudulent chinese companies being listed on US exchanges through reverse mergers is a recurring topic on the wolfpack research podcast E.g. check out episode 3.
Thanks for this dose of reality. I'm always surprised when mainstream financial elite (think Charlie Munger, Ray Dalio etc) always downplay the risk of investing in Chinese companies. I think no one can deny that success of Alibaba and other Chinese companies and they sure seem like a great investment opportunity. But the shenanigans of BABA listing should be a cautionary tale.
There are cautionary takes that can be gleaned regardless of region

Enron
Worldcom
Lehman
Etc etc

Corruption and greed are not unique to different countries
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Re: BABA profit down 87%

Post by HomerJ »

Nathan Drake wrote: Thu Nov 18, 2021 3:56 pm
crystalbank wrote: Thu Nov 18, 2021 3:30 pm
pseudoiterative wrote: Thu Nov 18, 2021 3:06 pm
Yesterdaysnews wrote: Thu Nov 18, 2021 10:27 am political risk is underestimated in Intl investing.
It seems a bit extreme to tar all "international" investments with the same brush. If you specifically choose to invest money in BABA as a foreign investor, presumably you've already done your due diligence and already know:
  • you're not actually buying ownership in Alibaba, you're buying ownership in a VIE
  • as a small foreign investor in China you have relatively few rights, and the party doesn't have any particular interest in keeping you content if the thing you have invested in turns out to be a scam or is expropriated by the state. Whereas the party is reasonably keen to ensure that China's domestic retail investors are content. Domestic stability!
  • about the whole fiasco in 2010-2011 where Jack Ma removed Alipay from Alibaba to an entity he controlled, without compensating Aliababa shareholders ( https://en.wikipedia.org/wiki/Alipay#History )
In contrast there are plenty of other boring public companies in many countries around the world that offer foreign investors relatively high levels of rights and protection, that do not involve VIEs in tax havens, have more transparent audit requirements, aren't run by management who have a history of stripping assets from the company without the approval of the company's investors and board!

illumination wrote: Thu Nov 18, 2021 11:03 am I actually had a small position in Alibaba a while ago and then I saw that film "The China Hustle" and basically decided I didn't want anything to do with investing in China. It almost seems built to fleece outside investors with the government's blessing.
Exactly! I haven't watched the China Hustle but the general topic of a lot of completely fraudulent chinese companies being listed on US exchanges through reverse mergers is a recurring topic on the wolfpack research podcast E.g. check out episode 3.
Thanks for this dose of reality. I'm always surprised when mainstream financial elite (think Charlie Munger, Ray Dalio etc) always downplay the risk of investing in Chinese companies. I think no one can deny that success of Alibaba and other Chinese companies and they sure seem like a great investment opportunity. But the shenanigans of BABA listing should be a cautionary tale.
There are cautionary takes that can be gleaned regardless of region

Enron
Worldcom
Lehman
Etc etc

Corruption and greed are not unique to different countries
Rule of law is certainly different. Enron CFO went to jail.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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Re: BABA profit down 87%

Post by GP813 »

It appears the government is playing favorites with Tencent and Baidu but how long will they be in the good graces of the CPC?
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Re: BABA profit down 87%

Post by Nathan Drake »

HomerJ wrote: Thu Nov 18, 2021 4:51 pm
Nathan Drake wrote: Thu Nov 18, 2021 3:56 pm
crystalbank wrote: Thu Nov 18, 2021 3:30 pm
pseudoiterative wrote: Thu Nov 18, 2021 3:06 pm
Yesterdaysnews wrote: Thu Nov 18, 2021 10:27 am political risk is underestimated in Intl investing.
It seems a bit extreme to tar all "international" investments with the same brush. If you specifically choose to invest money in BABA as a foreign investor, presumably you've already done your due diligence and already know:
  • you're not actually buying ownership in Alibaba, you're buying ownership in a VIE
  • as a small foreign investor in China you have relatively few rights, and the party doesn't have any particular interest in keeping you content if the thing you have invested in turns out to be a scam or is expropriated by the state. Whereas the party is reasonably keen to ensure that China's domestic retail investors are content. Domestic stability!
  • about the whole fiasco in 2010-2011 where Jack Ma removed Alipay from Alibaba to an entity he controlled, without compensating Aliababa shareholders ( https://en.wikipedia.org/wiki/Alipay#History )
In contrast there are plenty of other boring public companies in many countries around the world that offer foreign investors relatively high levels of rights and protection, that do not involve VIEs in tax havens, have more transparent audit requirements, aren't run by management who have a history of stripping assets from the company without the approval of the company's investors and board!

illumination wrote: Thu Nov 18, 2021 11:03 am I actually had a small position in Alibaba a while ago and then I saw that film "The China Hustle" and basically decided I didn't want anything to do with investing in China. It almost seems built to fleece outside investors with the government's blessing.
Exactly! I haven't watched the China Hustle but the general topic of a lot of completely fraudulent chinese companies being listed on US exchanges through reverse mergers is a recurring topic on the wolfpack research podcast E.g. check out episode 3.
Thanks for this dose of reality. I'm always surprised when mainstream financial elite (think Charlie Munger, Ray Dalio etc) always downplay the risk of investing in Chinese companies. I think no one can deny that success of Alibaba and other Chinese companies and they sure seem like a great investment opportunity. But the shenanigans of BABA listing should be a cautionary tale.
There are cautionary takes that can be gleaned regardless of region

Enron
Worldcom
Lehman
Etc etc

Corruption and greed are not unique to different countries
Rule of law is certainly different. Enron CFO went to jail.
And yet no one went to jail for the GFC which brought down the entire global economy
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Re: BABA profit down 87%

Post by firebirdparts »

If you look at various countries in the developed world, there were lots of zero SWR's in the 20th century, for various reasons, just going by the total market in those countries. I figure act accordingly. Or don't. Individual choice.
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Re: BABA profit down 87%

Post by orenishi »

With all of these negative comments from Bogleheads on BABA, I feel like it's the perfect time to start buying...
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Re: BABA profit down 87%

Post by andypanda »

Feel? Is that like a hunch? 8-)
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Re: BABA profit down 87%

Post by Valuethinker »

Nathan Drake wrote: Thu Nov 18, 2021 2:34 pm
EM valuations are already dirt cheap, their economies are growing faster, and they feature better demographics, but there’s more political instability. This is par for the course with EM. Historically, it’s been the highest returning asset class because it features higher risks.
China actually had similar demographics to the USA. Might actually be worse. Mexico's demographics are not great (Mexican birthrate began a precipitate fall in the 1980s). Mexico also has one of the worst obesity problems - a very first world problem to have.

Russia has terrible demographics.

The good demographics are primarily not in Emerging but Frontier Markets (like Africa). Plus India which as pretty good demographics at least for the next 30 years or so.

I am not sure EM has been the highest returning asset class? Certainly before the early 1990s, the index is pretty suspect.

What's really driven EM performance has been falling world interest rates (driving investors to seek higher returns in riskier markets). Plus a "got religion" moment since the depths of 1998, where most countries have foresworn high current account deficits, uncontrolled capital imports/ exports (leading to big swings when sentiment goes against them), and built up large foreign exchange reserves. Creditworthiness has improved dramatically.

Brasil and Mexico are probably outliers there in terms of CA deficits, along with Turkey.
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Re: BABA profit down 87%

Post by z3r0c00l »

Their P/E ratio is 3.7x smaller than Amazon which has had decades to turn a meaningful profit and justify its extreme valuation. I think the risk is heavily, perhaps excessively priced in. If BABA traded at the P/E ratio of an American startup of its size it would have a market cap of over a trillion. I think it could likely be there in 10 years.
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Re: BABA profit down 87%

Post by nydoc »

So is this a good time to buy BABA?
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Re: BABA profit down 87%

Post by Caduceus »

Alibaba owns a lot of things that you'd never realize it owns without digging into its financial statements. It is like getting Amazon, Paypal, Ebay, half of Wells Fargo, and a lot of investments into smaller associates for the current market price. It also has, maybe, say $50 billion cash, net of debt, so if someone were to ask you: would you be willing to buy Amazon, Paypal, Ebay, half of Wells Fargo, and smaller promising investments for $300 billion (market cap less its cash on hand), would you buy it? If this were a company domiciled in the U.S., there would be no question this would be a ridiculously low price to pay for all its constituent businesses.

But this is China, where shareholders rights are not at all respected, so you can't invest any significant portion of your net worth into it, alas. I've bought a fair number of shares at around $137 and also a couple of long-dated call options. That's all I'm willing to invest given the known political risks, which is a shame.
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Re: BABA profit down 87%

Post by Tinyz »

This is what I will sum China as: A decade of spectacular returns, A decade of grief.
This is what I will sum Europe as: People that will lift a rock and smash their feet happily.
Will US ever fall? Idk but I change the boglehead philosophy a little.

1) Always stay in market with low cost ETF
2) Always watch the investing landscape, Buy and hold does not mean Buy and forget
3) Always rebalance risk-return based on your needs in future and not present
4) Never Never trust whoever :twisted:
Last edited by Tinyz on Fri Nov 26, 2021 10:46 pm, edited 1 time in total.
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Re: BABA profit down 87%

Post by HomerJ »

Caduceus wrote: Fri Nov 26, 2021 10:12 pm Alibaba owns a lot of things that you'd never realize it owns without digging into its financial statements. It is like getting Amazon, Paypal, Ebay, half of Wells Fargo, and a lot of investments into smaller associates for the current market price. It also has, maybe, say $50 billion cash, net of debt, so if someone were to ask you: would you be willing to buy Amazon, Paypal, Ebay, half of Wells Fargo, and smaller promising investments for $300 billion (market cap less its cash on hand), would you buy it? If this were a company domiciled in the U.S., there would be no question this would be a ridiculously low price to pay for all its constituent businesses.

But this is China, where shareholders rights are not at all respected, so you can't invest any significant portion of your net worth into it, alas. I've bought a fair number of shares at around $137 and also a couple of long-dated call options. That's all I'm willing to invest given the known political risks, which is a shame.
Yep, if it was a U.S. company, one would definitely want to buy it.

As a Chinese company, you CANNOT buy it. You can buy some bogus fake shares that make you think you own part of BABA, but you don't.

This is important.
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Re: BABA profit down 87%

Post by Nathan Drake »

HomerJ wrote: Fri Nov 26, 2021 10:43 pm
Caduceus wrote: Fri Nov 26, 2021 10:12 pm Alibaba owns a lot of things that you'd never realize it owns without digging into its financial statements. It is like getting Amazon, Paypal, Ebay, half of Wells Fargo, and a lot of investments into smaller associates for the current market price. It also has, maybe, say $50 billion cash, net of debt, so if someone were to ask you: would you be willing to buy Amazon, Paypal, Ebay, half of Wells Fargo, and smaller promising investments for $300 billion (market cap less its cash on hand), would you buy it? If this were a company domiciled in the U.S., there would be no question this would be a ridiculously low price to pay for all its constituent businesses.

But this is China, where shareholders rights are not at all respected, so you can't invest any significant portion of your net worth into it, alas. I've bought a fair number of shares at around $137 and also a couple of long-dated call options. That's all I'm willing to invest given the known political risks, which is a shame.
Yep, if it was a U.S. company, one would definitely want to buy it.

As a Chinese company, you CANNOT buy it. You can buy some bogus fake shares that make you think you own part of BABA, but you don't.

This is important.
That’s not true
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Re: BABA profit down 87%

Post by fwellimort »

GP813 wrote: Thu Nov 18, 2021 4:56 pm It appears the government is playing favorites with Tencent and Baidu but how long will they be in the good graces of the CPC?
Tencent is also a great company. I'm always amazed by the holdings Tencent has. Tesla, Discord, Roblox, Kadokawa, Supercell, Epic Games, Riot Games, Kakao, etc.
I would love to own Tencent (especially cause every native Chinese friend I know uses WeChat). Probably the best company in China currently (hence having the highest market cap) and might even prove to be the best company to invest in East Asia.

For BABA:
Who knows. Maybe this is the time to buy BABA. Maybe not.
Political risk is there with Chinese stocks. No one knows.
Doesn't matter how great the company is, CCP can just crash the company market cap. CCP can also decide to delist stocks (e.g. DiDi), block new users from signing up (I hear (not sure) DiDi app cannot register new users for some time now), forcibly take out profits out of nowhere for the purpose of 'common prosperity', give unfair benefits to competitors if your company falls out of grace, potentially remove the CEO without warnings, etc.

It's been a harsh learning lesson for me this year (a reality check of some sorts) with my BABA shares now down almost 38%.
I'm still holding onto the shares because I am optimistic of the long term relationship with China/US in the stock market but I could be very wrong.
:D
There is higher potential rewards in emerging markets because of political risk. Tencent, Alibaba, etc. are great companies. Not many deny that. The problem is, investing is a totally different beast when it comes to Chinese markets.

If I'm not incorrect, native Chinese citizens cannot even invest in Alibaba currently. Alibaba is also doing share repurchasing which might end up qualifying native Chinese citizens to invest in BABA (if there's enough BABA shares owned domestically (55% or more?)).
Maybe that's what CCP is doing. Try to remove just enough foreign investors to have enough shares to allow domestic citizens to invest in the company. Or maybe CCP needs money due to Evergrande event and these tech giants are easy scapegoats. Who knows.

That said, on the latest Alibaba report, it does seem there is immense competitions ahead for Alibaba. So that's also another issue to keep in mind. The story unlike the past has changed a bit.
Not only is there political risk (which has only gotten worse), but there is also a possibility for other companies to take Alibaba's pies. Of course, not all competition is bad :) .
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Re: BABA profit down 87%

Post by boogiehead »

HomerJ wrote: Thu Nov 18, 2021 4:51 pm
Nathan Drake wrote: Thu Nov 18, 2021 3:56 pm
crystalbank wrote: Thu Nov 18, 2021 3:30 pm
pseudoiterative wrote: Thu Nov 18, 2021 3:06 pm
Yesterdaysnews wrote: Thu Nov 18, 2021 10:27 am political risk is underestimated in Intl investing.
It seems a bit extreme to tar all "international" investments with the same brush. If you specifically choose to invest money in BABA as a foreign investor, presumably you've already done your due diligence and already know:
  • you're not actually buying ownership in Alibaba, you're buying ownership in a VIE
  • as a small foreign investor in China you have relatively few rights, and the party doesn't have any particular interest in keeping you content if the thing you have invested in turns out to be a scam or is expropriated by the state. Whereas the party is reasonably keen to ensure that China's domestic retail investors are content. Domestic stability!
  • about the whole fiasco in 2010-2011 where Jack Ma removed Alipay from Alibaba to an entity he controlled, without compensating Aliababa shareholders ( https://en.wikipedia.org/wiki/Alipay#History )
In contrast there are plenty of other boring public companies in many countries around the world that offer foreign investors relatively high levels of rights and protection, that do not involve VIEs in tax havens, have more transparent audit requirements, aren't run by management who have a history of stripping assets from the company without the approval of the company's investors and board!

illumination wrote: Thu Nov 18, 2021 11:03 am I actually had a small position in Alibaba a while ago and then I saw that film "The China Hustle" and basically decided I didn't want anything to do with investing in China. It almost seems built to fleece outside investors with the government's blessing.
Exactly! I haven't watched the China Hustle but the general topic of a lot of completely fraudulent chinese companies being listed on US exchanges through reverse mergers is a recurring topic on the wolfpack research podcast E.g. check out episode 3.
Thanks for this dose of reality. I'm always surprised when mainstream financial elite (think Charlie Munger, Ray Dalio etc) always downplay the risk of investing in Chinese companies. I think no one can deny that success of Alibaba and other Chinese companies and they sure seem like a great investment opportunity. But the shenanigans of BABA listing should be a cautionary tale.
There are cautionary takes that can be gleaned regardless of region

Enron
Worldcom
Lehman
Etc etc

Corruption and greed are not unique to different countries
Rule of law is certainly different. Enron CFO went to jail.
Unfortunately white collar jail is more about trying to appease public perception versus truly being punished for all the people he screwed over. A couple years ago I was invited to attend a conference and when I looked at the agenda he was the keynote speaker…. after seeing that I declined to attend and did a quick search and he seems to doing even better than his days of being cfo…. he has done countless audit/fraud conferences and speaking events.
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Re: BABA profit down 87%

Post by Caduceus »

HomerJ wrote: Fri Nov 26, 2021 10:43 pm
Yep, if it was a U.S. company, one would definitely want to buy it.

As a Chinese company, you CANNOT buy it. You can buy some bogus fake shares that make you think you own part of BABA, but you don't.

This is important.
Commentators tend to make a big deal about the VIE structure. All of that is, to be sure, technically accurate. But two counter-points. First is that there are good reasons that the Chinese government will think twice before dispossessing foreign investors of their substantial stakes in Alibaba/Tencent, etc. It can do this, but it will come at a cost. It will be hard for Chinese companies to raise foreign capital subsequently; any regulatory rulings about the validity of VIEs will affect not just Alibaba but an entire host of Chinese companies structured in this manner.

So the question is what you think China's objectives are. I do not think that China's end-game is to shut out foreign investors. It wants to regulate these tech companies because of their immense and pervasive influence; if the U.S. government were to take some of these steps that China is currently taking (e.g. enforcing stricter data privacy laws), investors wouldn't have a problem with it. But with China, every regulatory step seems to be imbued with some sinister intent.

Second, lots of investments are structured like derivatives. So what? If I buy a call option on Bank of America, I am buying only the right to purchase shares but not the shares itself. Does that mean my option has no value? If that option has more/less counterparty risk, then it gets priced accordingly. If those options are sold in a marketplace where I, as the buyer, have less legal recourse in the event of advese events, then the option gets re-priced accordingly. The question, for me, is not whether I am owning Alibaba shares directly or through a VIE structure, but whether given those known risks, the shares are priced at a significant enough discount for me to want to own them. Put it this way - at a dollar, everyone would be buying Alibaba shares, VIE or no VIE. $133 isn't $1, but depending on your valuation of the business, it's pretty enticing.
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Re: BABA profit down 87%

Post by visualguy »

There's a focus here on Chinese government intervention, and that's indeed an issue, but there's also the issue of US government regulation and intervention in Chinese listings, such as allowing or not allowing investment in various companies or imposing new requirements as we've already seen. It's a double whammy, unfortunately, with a lot of uncertainty and risk.
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Re: BABA profit down 87%

Post by 3CT_Paddler »

International != China. Tons of great companies in the international space.

The idea that the market prices in all risks, may be true to a certain extent, but if you lived through the housing bubble and Great Recession you know that the market can be irrational or at the very least does not have a crystal ball.

China has gone through a significant change in attitudes towards capitalism over the past 10 years. Prior to that China was more capitalist in some aspects than the US. Today most of their large Chinese companies are owned or run by their government. They have started detaining powerful business leaders that don’t toe the CCP line. They have pushed for “common prosperity” which means they can take any companies’ profits and distribute them to a favored group or “the people”.

[OT comments removed by admin LadyGeek]
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Re: BABA profit down 87%

Post by danaht »

Emerging market government risk is why I am not adding to my VWO position recently (emerging markets which is a big % of China) - and tend to mostly invest in VEA instead (developed international).
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Re: BABA profit down 87%

Post by riverant »

3CT_Paddler wrote: Sat Nov 27, 2021 7:51 am International != China. Tons of great companies in the international space.

The idea that the market prices in all risks, may be true to a certain extent, but if you lived through the housing bubble and Great Recession you know that the market can be irrational or at the very least does not have a crystal ball.

China has gone through a significant change in attitudes towards capitalism over the past 10 years. Prior to that China was more capitalist in some aspects than the US. Today most of their large Chinese companies are owned or run by their government. They have started detaining powerful business leaders that don’t toe the CCP line. They have pushed for “common prosperity” which means they can take any companies’ profits and distribute them to a favored group or “the people”.

[OT comments removed by admin LadyGeek]
Agree with all of this. Fortunately VXUS is only 9% China and my 401k international fund is x-China.
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Re: BABA profit down 87%

Post by abuss368 »

Yesterdaysnews wrote: Thu Nov 18, 2021 10:27 am Not going to stray into politics but BABA profit crushed by the government over there - any opinions? To me, political risk is underestimated in Intl investing.
Investments have different degrees and types of risks. International investments are a perfect example. Often shareholder rights, business laws, and the political atmosphere is different and may not align with an investors home country.

Alibaba has faced a very rough path over the past one year. From the doomed IPO being scrapped 48 hours before launch, to Jack Ma’s challenges, to Ali Pay having to revamp their business model to absorb more risks in their model (and less with the country’s banks in general), there is uncertainty.

I can not imagine investing in the individual stock and I am thankful for the diversification of funds.

Best.
Tony
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Re: BABA profit down 87%

Post by LadyGeek »

I removed an off-topic post. This thread has run its course and is locked (political policy). See: Non-actionable (Trolling) Topics
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