Friday, June 27, 2014

If you want it, you can't get it; if you can get it, you don't want it : Alibaba IPO

Rick Schmidt

Said : Rick Schmidt, portfolio manager at Bridgewater, New Jersey’s Harding Loevner, when asked about the forthcoming debut of Chinese e-commerce giant Alibaba's IPO.

Harding Loevner manages $37 billion, primarily in international stocks, and Schmidt helps lead the firm’s $2.2 billion emerging markets fund.

Steve Schaefer of Forbes, spoke to Schmidt shortly before Alibaba formally filed documents to list in the United States, last month. "Schmidt lauded the company while lamenting that the deal would probably be priced too high to hold much appeal for him initially," Forbes reported.

In 2013, Ailbaba processed 11.3 billion orders worth $248 billion, well ahead of Amazon and Ebay combined, with its sales accounting for 84% of China’s online shopping.
Alibaba Group's corporate campus in Hangzhou, China
According to Schmidt, Alibaba's IPO has the typical characteristics of emerging markets IPOs where the appealing IPOs generally get too expensive thanks to growth-hungry buyers. “If you can get it, you don’t want it,” he adds. “If you want it, you’re not gonna get it.”

In Schmidt's opinion, the most-hyped IPOs draw demand that far exceeds the number of shares being offered, driving up price and shutting out all but the biggest institutions and most well-connected investors. "In the current landscape, with many high-flying tech stocks falling out of orbit, it’s worth remembering that even the hottest deals often revisit their IPO prices – Twitter has gotten close in recent sessions – and even those that don’t will go through trying periods that make for more attractive buying opportunities," he said.

Schmidt prefers to wait for some time before taking a call at a certain price in case things go sour either due to broader market headwinds or some kind of post-offering swoon. “The busts are the best,” he says. “There’s never more information asymmetry than an IPO – the company knows everything about themselves and only lets you know what they want you to through the filter of the investment banks. With time, every day we learn more and get a track record. I’d much rather wait.”

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