Alibaba

How Paying For College Led Me To Buy Alibaba (BABA) Stocks On IPO Day.

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Alibaba (BABA) is at an all time high having almost doubled its IPO price with a whole lot more upside potential.  Alibaba (BABA), a Chinese company founded by Jack Ma in 1999 has grown to become one of the world’s most valuable e-commerce companies.  It operates one of the world’s largest B2B portal as well as a number of other properties including it’s B2C arm, AliExpress, which allows its merchants to reach the international market.  Domestically, they have an eBay like service, called TaoBao and in the USA they’ve launched a curated marketplace on its 11Main portal.  They even have their own Paypal like payment and escrow service called AliPay.  They have pretty much built a business that is top to bottom.  While Alibaba (BABA) has been long known in China, most Americans only begun hearing their name for the first time more recently.  As such, how was it that I knew to invest in Alibaba (BABA)?  Why was I so confident in its growth?

My story with Alibaba (BABA) goes back to before they even had an international consumer business.  Long before there was an AliExpress, they were purely a B2B driven company, giving the world access to Asia’s vast factory labor force by connecting importers and exporters via its portal.  At least this was the case for it’s international business (they still had TaoBao in local markets).

When I first started college, I had to find a way to support myself.  Sure my parents were morally and, to the extent that they could be, financially supportive, but we were not wealthy and I had to pull my weight in contributing to my own education.  I started out working at Safeway and eventually at a local restaurant.  Conveniently along the way, I made some really wealthy friends and moved in with them.  They were from privileged families and none of them had to work during college.  In fact, I remember taking my friend on the bus with me one day and he told me that he had never taken public transportation before.  That was shocking to me.  Being the only person to have to work in your entire house was very daunting as you could image.  While everyone else got to chill, play golf and go on trips, I had to work, often times, coming home too late to join the festivities.  There had to be another way.  I was determined to find it.

During this time eBay was at its peak as one of the hottest platforms for trade domestically here in the US.  At that time, Alibaba (BABA) was in its infancy and connecting to wholesalers overseas using the internet was not yet common practice.  The barrier to entry into the import/export industry was still perceive-ably high since most people were still doing businesses with telephones and brokers.  The technology, while actually available, was not fully developed to where it is today and people simply weren’t using it.  Having grown up in the internet age, I began looking to find a way to get products at a really low cost and sell it for a good profit, all digitally.  That is when I stumbled upon a few website portals connecting Chinese factories to the international markets, one of which was Alibaba (BABA).  This was my goldmine.  Now I needed a distribution channel.  With little e-commerce experience, I went with eBay, a company everyone knew.  While they do eat at your profits with their fees, the volume makes up for the cuts.  Additionally, you could get started right away, no coding, no building a customer base.  By marrying the two, I began my first internet business.  With my last $500 as an initial investment, I was eventually able to quit my part time college job.  My new routine looked like this.  I would stay up until 3-4AM in the morning to talk to Chinese suppliers since they were half a world away, package items and post new inventory.  Outside of school and studying, I spent my days sending money to suppliers over seas or mailing packages at the post office.  This was a total of about 6-8 hours a week.  Now back then there was no AliPay or any payment security.  All of my transactions where done by sending huge amounts of cash overseas using Western Union.  There were definitely some shady suppliers who received my money and never sent inventory.  You eventually build your network of reliable suppliers and work with the selected few.  The income was steady and I made more money doing this than what I made my first few years out of college at a normal 9-5.  The best part of this was that the business allowed me to splurge during my second half of college which was a nice change from saving my tip money to pay rent.

Unfortunately, as in most retail sectors, products come and go in waves.  Things become out of style, dated or yesterday’s news.  If not, a market eventually becomes saturated as access to your sources become more open.  Eventually the vertical that I was in became very saturated.  As Alibaba (BABA) grew, so did its user base, unfortunately for me, this meant US buyers trying to mimic what I had done successfully.  With the launch of AliExpress, the overseas manufacturers and local Chinese business owners were able to reach the international consumer markets directly, without a need for middlemen like myself.  They now had the source and direct distribution channel.  Their retail prices became their wholesale prices and profit margins shark to $0.  About a year and a half post college I decided to close up shop.  I had already made my share, had money in the bank, no college debt and a whole lot of real world e-commerce business experience.

Throughout the years, I watched Alibaba (BABA) grow from simple direct messaging capabilities to a fully featured portal and expand into the consumer markets.  I’ve seen it go from virtually an unheard of brand to everyday people saying that they “got it online at AliExpress,”  For me, there was no doubt here.  This company was and is poised for long term growth.  So, when I first heard that they would be listed in the US markets in the NYSE, I knew I had to get in ASAP.  On IPO day, I locked in a market order and haven’t looked back since.  As Warren Buffett’s age old adage goes, “Never invest in a business you can’t understand.”

I will say that buying stock in Alibaba (BABA) does not come without risks.  On top of the normal risks that come with any stocks, Alibaba (BABA) is a Chinese company and subject to their government’s will.  In theory, the Chinese government could shut the company down at any time, however this is very unlikely as it serves no one’s best interest.  Additionally, in order to get around Chinese and US laws, the company is set up as an offshore shell company with no direct profits except what is fed through by the larger domestic counterpart.  Despite these nuances, I believe in the company and am not warded off.  I’m in it for the long haul.

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