Love your website for small and beginners. Are you planning on investing in Alibaba? I have about 100,000 and would like to get in on Baba. what are your thoughts? Also yahoo who has 24% in BABA. would you also buy some yahoo? I don’t know how many shares to buy at IPO but don’t want to buy to few as you mentioned in one of your articles. Thank you so much for your time and knowledge you are sharing with us!
Thank you for the kind words and for reading the The Small Investor blog.
I know that IPOs are exciting, especially since the 1990’s when we saw internet start-ups shoot through the roof. That type of speculation, however, doesn’t fit the investing style I recommend. First of all, with all of the hype and excitement, it is unlikely you’d be able to get a good price for the stock. While stocks like pets.com went up dramatically during their IPO days, they also fell dramatically once the insiders were able to sell their restricted shares. I would love to get shares of an IPO at the opening price, but not at the price of the second or later trades since it is very likely that I would be paying way too much. I would rather wait for the fall from grace and then buy some shares if the company does have sound fundamentals. Think about buying Amazon in late 2000.
Another reason I would not invest at this time is that I have no history from which to develop an opinion on how Alibaba will do. I don’t know if their management team knows what they’re doing. I don’t have any record of earnings and earnings growth. I really don’t even know much about the markets they’re in. I like to be able to have enough information to minimize the risk of a bad management team or a bad product. That requires some history as a public company and the release of earnings over a few years.
Also note that since they are operating in parts of the world where the government could swoop in and nationalize them on a whim, there is a political risk as well. I try to stay away from situations involving politics since that is very unpredictable. You need to know who the favorites are of the government officials in power.
Now on the amount you’re talking about investing. If you have several million dollars invested elsewhere, putting $100,000 on a single, unproven company might be justified. It is just your gambling money that may pay off, but no great harm done if it vaporizes. If that is most of the money you have, however, it is way to big a risk unless you are the CEO of Alibaba and therefore have a great deal of control over the company. Even then it is risky and you would be better served spreading your money out into other companies.
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Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.