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Initial Public Offerings and the Value Investor: Some Thoughts on Alibaba

The Alibaba Initial Public Offering (IPO) is all over the news this week, as just like most IPOs it is gaining a lot of hype.  In fact, this company’s price in the market rose nearly 40% on its first day of trading.  In this episode of the ModernGraham show, learn about how IPOs may fit in a value investor’s portfolio.

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2 thoughts on “Initial Public Offerings and the Value Investor: Some Thoughts on Alibaba

  1. How does the ‘wait for 5 years’ concept apply to Alibaba IPO given that it is already an established company since 1999 and has proven record of earning, revenue and profit margin? It is not a company just came out of the blue. I think their IPO is to raise some fund for further expansion

  2. Your comments were well said- those are all Mission Critical operations for the Value Investor.

    Something I’m interested in with this IPO on particular, as pertains to Value Investing, is the concept of Legal Claim on Capital. With BABA, the investor has no legal claim on the Capital or a earnings of Alibaba- it’s in black and white. I think this should disqualify the investment- and other similar investment opportunities- statutorily.

    The reason being, we can talk about Earnings all day, but if you have no legal, legitimate claim on those earnings, what does it matter? What you’re really speculating on is the Credit Worthiness of the counter-party who’s promising to match any actual legal claims on the actual Capital structure. Technically speaking, we’re talking about a derrivative product here, not to be overly obtuse but that’s how I see it. I’d imagine that even if the investment case were otherwise strong, this alone would be a sticky-point for someone like Ben Graham.

    I realize this comment may come off as very old school. I still think that the guidelines set out by Graham and other Value Investors are applicable here re: claims on capital. It’s just something that struck me when I first started forming an investment thesis on BABA.

    Thanks again, I appreciate all the great work you do here.

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