Alibaba (BABA) has been a frustrating stock for investors over the past decade. Recently, the stock moved from $80 to $100 on the discovery that it has a strong AI engine and has invested in Deep Sea, making it a serious AI contender. The company has an impressive market share in its space, and its financials are nothing short of extraordinary. In the last ten years, revenue has grown 15 times, free cash flow has increased six and a half times, and earnings per share have more than doubled. Yet, despite these incredible numbers, the stock has been stuck in a frustrating cycle.
Stock Prices Do Not Always Follow Fundamentals
At one point, Alibaba’s stock price surged from $80 to nearly $300, but it later crashed back to the same $80-$90 range. This means that despite the company’s massive financial growth, investors have seen a decade of stagnation. Even the best investors, including Charlie Munger, have been caught in this frustrating cycle. The question is, why? If revenue, cash flow, and earnings per share are rising, shouldn’t the stock price also move up? It turns out that stock prices don’t always move based on fundamentals. What was once used to justify a stock going up can later be ignored when the stock moves down.
The Problem with Holding a Stock That Isn’t Moving
Many investors fall into the trap of believing that if a company is doing well financially, its stock must eventually rise. However, as seen in the case of Alibaba, this is not always true. A stock can remain stuck for years, even if the company itself is growing. Investors who hold onto such stocks often end up wasting years hoping for a recovery that may never come. There could be countless reasons why Alibaba’s stock hasn’t moved much, and it may take another five years for any real change to happen. Or, it could suddenly surge to $500 tomorrow. The unpredictability makes it a frustrating experience.
Why Following the Trend Works Better
Instead of holding onto a stock simply because the financials look strong, it may be wiser to follow the trend. When a stock is trending upward, it makes sense to buy. When it is not moving, there is no reason to sit and hope. Investing should not be about suffering through years of losses and waiting for a recovery that may never happen. The goal should be to make money with minimal frustration.
Make Investing a Pleasant Experience
Many investors make the mistake of believing that pain and struggle are necessary parts of the investment journey. But why should investing be painful? Why sit in a stock for years with no returns when there are better options available? The idea is to invest in stocks that are actually moving in the right direction rather than holding on to those that might take years to recover. Choose an investment strategy that keeps you engaged and excited, not one that leaves you frustrated.
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