Alibaba and its IPO

Alibaba headquarters in Hangzhou

One of my friends called me up last month and ask me how many shares of Alibaba Group Holding Ltd. ADS was I going to buy? She just assumed that because I know something about the stock market and Alibaba is on the news 24/7 that I was going to buy some of it and make a lot of money. 

 

She was very disappointed when I told her that I do not buy IPOs and I don't think that I would buy Alibaba anyway.  Boy, did she tell me off! She claimed that the stock was going to go through the roof and that I was going to miss out on the greatest IPO of a life time.

I told her that this IPO craze that the media is leading on behalf of the large investment bankers is not my part of the market. I follow my own nitch. But let's see how things have gone in the Alibaba market since the IPO first went out on the market.  Just looking at the name tell you that this stock has plenty of risk.

 The Chinese e-commerce company benefited from an explosion of hype around its initial public offering, which raised a world record of $25 billion.  Despite that fanfare, investors who hit the "buy" button on Alibaba (BABA, Tech30) are likely staring at red ink. While insiders and VIP investors could buy Alibaba at its IPO price of $68, many average investors hit the stock exchange at $92.70 due to heavy demand. Today, it's trading about 7% lower as global markets have stumbled in recent days.

The bull market hit some turbulence in September, but that didn't stop Alibaba Stock (Stock Symbol: BABA)  from generating lots of interest from investors.  My friend thought she was going to buy it at $68.00. But that is not how the market works. Your market makers and  Institutions such as banks, insurance companies, pension funds, endowments get their orders in first. That pushes the stock price up. Then the public buys the stock. My friend bought her shares at $90.00 per share. That is better than many of the "hype followers."  

So far this October, the market has been very volatile and so has the stock. The stock hit a high the first day of trading at $99.70 and a low Friday Oct. 10, 2014 of $85.24. The stock closed that day with $85.88. If I wanted to take the risk and buy this stock, I would wait until the stock hit $80.00 per share or I would by at the end of October.