Alibaba Stock – One Thousand and One Nights

Monday, September 29, 2014

Arabian Nights aka. One Thousand and One Nights is a famous compilation of Arabic stories dating back to the Islamic Golden Age of 622 – 1258 CE. Containing household tales such as Aladdin’s Wonderful Lamp, The Seven Voyages of Sinbad the Sailor and of course Ali Baba and the Forty Thieves. In Ali Baba, a cave containing stolen treasure was unlocked with the words “Open Sesame”.

On the 19th of September that access code was changed to “Open Wall Street” with the IPO of Alibaba Stock (BABA) yielding its original shareholders a $25 billion fortune, resulting in a market cap of an astonishing quarter-trillion dollars! It remains to be seen whether those are bona fide gains.

It is generally understood that market tops occur during periods of mass euphoria and we juxtapose the above with the Wall Street Journal headlines from a few days prior, 15 Sep 2014, “Venture Capitalists are Partying Like It’s 1999” (GS: 1999 was a market top) and “Bears Turn Docile As Market Keeps on Roaring. Former Pessimists Throw in the Towel in Face of a Rally That Won’t Quit.”

What to make of it all? Bear in mind we are dealing with mass psychology, the ficklest of all indicators, SENTIMENT.

We are positioned conservatively in our center book with a large cash position, defensive precious metals and no fixed income to speak of because of interest rate uncertainty. Based on the above analysis we may get lucky and prove correct in our positioning.

HOWEVER (you knew that was coming) we are never fully comfortable in the market because investing is a difficult art, succinctly captured in the words of Jesse Livermore a legendary stock trader in the classic novel Reminiscences of a Stock Operator :-

“After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: it never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!”

So now that we have peered over the horizon and dare to suggest we are forming a market top, we are cautiously reminded of our market note on June 5th (will have link to: What is a Bull Market 2009 -) where we explain that the market is out to confound as many participants as possible. Indeed, your author has recently been asked during cocktail chatter, on more than occasion – “When will this market crash?” Paradoxically an indicator that a crash is not imminent.

Our best guess is that we may experience a prolonged period of volatility with the market moving violently in a wide range, netting exactly zero and frustrating both bull and the bear.

Greg Silberman CFA®, CAIA, CA(SA)

Chief Investment Officer

Advisory Services offered through Atlanta Capital Group.

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