| | | Thanks for a thought-provoking post.
What are your reasons for thinking that this is a buying opportunity in BABA, and not a bull trap?
And more importantly, what is your reasoning to believing in BABA's long term prospects? (which I gather that you (and many others) do, since that is obvs the only reason to buy a co. for 27 times record earnings and 4.5 times book. What I'm saying is, it still looks expensive. I don't know the co./brand name either, only the ticker. I think it's harder to hold such a co through thick & thin than one that you thoroughly know; especially when that is the only MoS you have, since valuation has a lot of air.
I have only ever seen one moat that I really understood, and that is AAPL. Unfortunately enough I only realized their Moat a few months ago... Despite having used their products (Mac's) since 2015 (and during liek a year, iPhone), and considering their computers vastly superior to Windows, and also seeing the synergy effects for the customer that come from using Apple only products, that ppl seem to be willing to pay up for (although their phones are no better than Samsung IMO, but three times dearer and about 10 times more likely to break).
Problem is, I don't know if I would have been comfortable buying AAPL above P/E 15 and PB 2. I don't think so. I have a similar co. now –– Swedish Match, the old match king Ivar Krueger's old co. –– which since decades has a near monopoly on the snuff market –– a nicotine product that more Swedes use than cigarettes, but hardly no one else, until recently, when the "white snuff" has been introduced, and has very much blown up in liek a year, when I first heard of it (long time snuff user myself). Swedish Match's product, ZYN, is vastly superior to their only real competator in Sweden, Lyft. They have also successfully introduced the product in US. I think it's already their main market. Obvs. still much room to grow there. In Swe, smoking has almost completely disappeared, at least in Stockholm -– seeing a smoker these days is rare. That may very well spread to US, I think (although smoking will most likely remain for a long time still in poorer/less educated parts of world). SM is also remarkable for having negative book value, which I'm not sure if it's a good or bad thing, since it's (probably) largrely because having made massive share repurchases over time (I think they have bought back ~2/3 of shares) Buffett said once that he knew of no example of a co with negative BV, but that he didn't see why it would necessarily be a problem. Hoping to be able to bring it up in my accounting class as a case study.
Here comes my point: STILL I sold my shares when price went down in a similar way to BABA, bc of high valuation and not enough numerical MoS. Which, IMO, is the only real MoS. Maybe, even only MoS, period.
I become increasingly skeptical of Buffett style (so called) value investing. IMO, Buffett is no longer a value investor. Maybe I'm overly rigid here, and Howard Marks remarks re: exaggerating differences between value/growth resonated with me, so trying not to be –– but when you're holding AAPL at > 30 times record earnings, and even more notably, >30 times book value (and still AAPL is to a large extent a hardware/manufacturing co!) as a value investment, you're trying to fool someone; if no one else, yourself. JMO.
I think moat investing has become so widespread (and/or the general multiples, especially of those co's, have become so high) as to not work anymore (if it ever did; the famous (and only?) examples of Buffett's successful such investments, like Coke and Gillette, were made at way lower multiples than this (probably PE ~/< 15 and BV ~1?). He still considered price. And when he bought AAPL in 2016, it was still relatively cheap.)
Moat multiples can't go much higher, since rates can't go much lower. Downside seems humongous in those kinds of stocks, I think. |
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