Friday was the day we have been waiting for, for several months. It was both absolutely exhausting and rewarding. Of course, I am talking about Alibaba (BABA). The roll-out of the Apple (AAPL) iPhone 6 and 6 plus was just a side show.
Recalling Alibaba’s First Day of Trading
So let’s focus on Alibaba. As I have said in this commentary in the time leading up to the Alibaba IPO, I expected the stock to be priced to the public at $69 and then open for trading at $90. I arrived at those numbers based upon my careful reading and analysis of the company’s SEC F1A filing, something that very few people bothered to do.
As it turns out, the IPO was priced at $68. After nearly two hours of the NYSE specialist matching buy and sell orders, the stock opened at $92.70. It quickly surged to just under $100, $99.70 to be precise, as retail investors put in market orders to buy the stock. Trust me when I say that they did not read the prospectus but acted out of pure undisciplined desire to own the stock. My strategy was to purchase the stock at $90 and before the market opened, I entered orders at that limit and waited. I was not induced into taking action by the retail led run up in the stock.
Those retail orders were rather fleeting and Alibaba’s stock price began to retreat. It fell below the $92.70 opening price and was on its way to $90. I was not going to let this one get away, and knowing that there would be professional bids at $90, I inched my bids up to $90.25 and was filled. The stock closed at $93.89. It pays to be patient, disciplined and do your homework.
So what do you do with Alibaba now? You lock it away and don’t pay attention to the noise from the stock’s short term price movements or the talking heads on TV, most of which never read the SEC filing. Please understand; that there are risks to owning Alibaba. I just believe that the rewards outweigh those risks.
As to Apple, that stock took a back seat to Alibaba while sales of its new products, on the internet and at stores surged. Yahoo (YHOO) on the other hand, again as I expected, would get sold on the Alibaba IPO. Up till Friday, Yahoo was a proxy for Alibaba. Yahoo owns a significant stake in Alibaba and was used as a hedge by hedge funds for the Alibaba stock they received in the offering, or as a source of cash (as we did at LakeView Asset Management a few days ago) to fund Alibaba purchases.
While I was waiting for Alibaba to trade, we took a starter position in Lowes (LOW), the home repair retailer. With both of those purchases our Growth Portfolios are nearly fully invested.
Market Slowdown Expected for Rosh Hashanah
This week will be somewhat of a letdown to last week’s excitement. Furthermore, with the Jewish New Year set to begin Wednesday evening with Rosh Hashanah, some market participants will be leaving early and taking off Thursday and perhaps even Friday (I plan on taking off both days). Hence, we have the old Wall Street adage, “Sell on Rosh Hashanah, Buy on Yom Kippur.” Yom Kippur begins a week from Friday evening.
Of course, before the holiday begins we have three days of trading and my newly instituted weekly chat on LakeViewAsset.com this Wednesday at 1PM. All are invited and it is free of charge. Last of all, autumn begins today. The way the summer went, I thought it started several weeks ago.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView AssetManagement, LLC was long AAPL, BABA, LOW & YHOO — although positions can change at any time.
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