lundi 11 octobre 2021

Ali Baba and other popular chinese stocks

I've written a bit about chinese stocks in the past and I still think the same about them: they are way riskier than the average nort american stock. In other words, I'd rather pay 40 times the earnings for a high growth american stock than 20 times the earnings for a high growth chinese stock. Why adding the political risk to the financial risk that we already have to cope with? 

But a lot of investors seem to disagree with me. 

For instance, Ali Baba (BABA) is a very popular stock for a lot of superinvestors. Yes, even if Jack Ma (the CEO) disappeared for a while in 2021, a lot of people still believe in this company. On Dataroma, there's 17 superinvestors who own Ali Baba. Some of them have a very large stake of their portfolio on that stock. Here's a few of them:

Greg Alexander: 21%

Mohnish Pabrai: 21%

Charlie Munger: 20%

I don't really know or respect the first two investors. However, I know a bit about Charlie Munger, mostly because he's the close friend and associate of Warren Buffett and because he's very very old and has a very weird face. But I don't think that I like his investing style either (actually, 95% of his portfolio is made of Wells Fargo, Bank of America and Ali Baba... Who would put 95% of their money on these 3 stocks?).  

As a bargain as BABA may look these days, I think that it's not a smart move to put 20% of a portfolio on any stock. And it's worse when it's a chinese stock. 

Here's the performance of some very well known chinese stocks over the last year:

Ali Baba: -24%

Tencent: -13%

Baidu: -11%

Naspers (not really chinese, but south african tighlty linked to China via a big stake in Tencent): -15%

Here's my advice: add 20 to the current PE of a chinese stock that appeals to you. That's the risk factor that you should add to the current price. And then, compare it with any other north american stock. If you still want to invest in the specific chinese stock, then invest in it like a high PE stock. Which means that you shouldn't put 20% of your portfolio on a stock with a PE of 40.

China is a not a democracy. China doesn't allow Google and Facebook on it's territory. China asks for tourists to tell to the authorities where they stay every day. COVID is from China and China is responsible for that fucking pandemic. China is not a good country. 

You still want to invest money in that country? OK, but take all these risks into consideration. 

3 commentaires:

  1. Everyone thinks of China as corrupt and untrustworthy but which country is responsible for the Great Recession?
    Alibaba is 20% of that particular portfolio which is roughly 2-3% of his net worth. Plus he's 97 years old..there really isn't any long term consequences at that

    1. You’re right. But I wonder why putting together two big American banks and Ali Baba on the same portfolio. It’s a very strange mix and very concentrated.

    2. I think most of us have been conditioned to believe that diversification is a must. He's in a different league and knows things that we don't. Is it actually risky to have all your money in one stock? I know it feels risky but how many large reputable US companies shit the bed in a short amount of time and never recover? My friend has had all of his money in Apple since 2007. He's in the millions now and still holds all of his shares.