Lemelson discusses the risks associated with investing in Alibaba (NYSE: BABA) in January 2015 (17 months before the SEC announces investigation into firm). Discussion includes descrepencies between the firm's reported shipping figures and carrier capacities as well as commentary on the risks of investing in IPO's in general, particularly Chinese IPO's. Shares of Alibaba traded around ~$100 per share at the time.
“SEC probes Alibaba accounting methods, shares dive” – Reuters, May 26, 2016
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“This Hedge Fund Manager Says 'Stay Away' From Alibaba” Benzinga, January 29, 2015
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Listen to Lemelson’s comments on Alibaba on February 20, 2015 here
“…It’s a new issue, it’s a young company, there’s enough stocks out there that you don’t need to go value picking amongst the IPO world, and importantly, the key thing with IPO’s is that this is a transfer from existing shareholders when the company was private, to new shareholders when it goes public, and there is a great deal of effort made from insiders in the company and their marketers, the investment banks which underwrite the IPO’s, to promote the stock, usually at a price that exceeds it’s real value, and there is a lot of exiting going on, so we can’t overlook that, or forget that if you’re looking to buy an IPO, what’s the underlying motivation of the sellers of the stock? That’s almost universally true of IPO’s, not that every IPO is bad, there’s just too much risk because the sellers interest, in this case the underwriting banks and the insiders who are making the shares available, their interests are not aligned with yours as a retail investor, so important to remember. Most of the time you have companies that you certainly couldn’t justify the price based on their financial showings, and in the case of Alibaba, as well as so many other companies, you don’t usually have a very long public track record upon which you can make a qualitative assessment”
Listen to Lemelson’s comments on Alibaba on July 17, 2015 here
“…if the Chinese market is so robust, why are these Asian companies coming to the US to IPO? And I think the idea that we’re going to go into a foreign land to discover riches is a very ancient one, it’s existed for thousands of years, you can find references in the Gospel that speak to this notion, and it looked exotic right? To the average investor, I mean, ‘wow we’re going to participate in the China story’, but there’s another adage, ‘what the wise do in the beginning the fool does in the end’. By the time an issue comes to the retail investor, everyone else has already made their money off it frankly, and it’s really, it’s a transfer. It’s the people in the inside, reallocating their equity stake and diversifying, to maybe less critical buyers, and so when you see these big IPO’s coming, I’m not a big fan of IPO’s ever frankly, there’s so many issues to choose from which have long term track records that are available online, but especially when you have one coming out of China, with all the promotion associated with it, the glamour... they're trying to talk to the ‘average joe’ with an eTrade account, and he gets really seduced by that kind of thing. I would say be very careful, it’s down about 25% since those comments were made, so it turned out to be prescient”
Listen to Lemelson’s comments on Alibaba on September 25, 2015 here
“It’s interesting, our commentary on Alibaba goes back to our January interview on Benzinga, and it’s gone down over 40 percent since then, that interview was January 28, 2015... The commentary we made then about Chinese IPO’s looks particularly prescient now in hindsight, a lot of valid questions have been raised about some of their shipping volumes, about what carriers could possibly deliver vs. what Alibaba is reporting, they’re reporting numbers that are just hard to wrap your mind around for deliveries. Why speculate there? I mean if there are any questions whatsoever on the validity of the books, wait and see, there’s a wonderful saying “time reveals truth and justice”, the numbers there look very suspicious, so just wait, maybe Alibaba will prove that they really are this fantastic company, maybe they won’t, but you don’t have to swing at every ball that gets pitched at you, I would say wait on Alibaba, but looking back again, nine months, it [the Lemelson commentary on Alibaba] looks awfully prescient, it’s down over 40 percent since we said ‘stay away’ "