Alibaba… No Bubble to Me

With the Fed meeting, press conference and Scotland out of the way, markets turned to Alibaba’s initial public offering (IPO) to close a very busy week last Friday. Looking at possibly a record $20+ billion IPO, the money had to come from somewhere. And judging by tech stocks behavior over the prior week or so, it certainly looked like institutional investors were paring back holdings to pay for Alibaba.

The hugely anticipated IPO priced at $68 and promptly opened at $92.70. You would think the exuberance could be felt across individual investor land, but one poll I saw showed 75% of Americans had no idea what Alibaba even was. In tomorrow’s piece, I will show previous “hot” IPOs and how they fared. I vividly remember pundits calling Facebook and Twitter bubbles in tech, stocks and IPOs. How did those calls work out?

I went out for lunch with a good friend on Friday at a local popular spot. He asked what was new in the investment world, to which I replied “Alibaba!” He said, “Ali what?” My friend said he never heard of the company nor was familiar with this hot offering. This all made me very curious, so I emailed a list of random people I know to ask what they knew about Alibaba. Only 20% knew anything about it. Not a single one knew they were going public today. No one really cared.

Of course, my “research” is anything but scientific or academically meaningful, but it’s very hard for me to buy the notion of a massive bubble in stocks, tech or IPOs when the average person in my universe hasn’t a clue about what is being touted as “bubble’esque” or just like the Dotcom era. When the last tech bubble hit in 1999-2000, I couldn’t go to the gym, the golf course or even the supermarket without someone asking me about a tech stock or giving me a tip.

Today and for the most part over the past few years, on a 9:1 ratio, comments from friends who are not clients fall in the disbelief camp. Most disavow the bull market and some outright hate it. More than likely the haters are also probably sitting on a lot of cash wishing they were invested.

The disavow camp typically asks questions like, “how can the Dow be at 17,000?” or “isn’t this all smoke and mirrors from the Fed?” The bottom line is that it really doesn’t matter. Price is the final arbiter. Disavowing the bull market from 6500 to 17,000 because the Fed is operating in uncharted waters is a poor investing strategy. People forget that after stocks collapsed 89% from 1929 to 1932, they “bounced” more than 400% with the government’s very heavy hand in the mix using “extraordinary measures.”

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