In November 2020, just after the unexpected suspension of Ant Group’s IPO, an analysis of Alibaba Group Holding Limited (NYSE: BABA) was published on Seeking Alpha. Titled Alibaba: E-Commerce Giant In The Midst Of A Hurricane, the article delved into the challenges faced by the company during a volatile period. This analysis marked the beginning of a fascinating investment journey for many, offering valuable lessons and insights into the complexities of navigating market turbulence.
Alibaba was in freefall, its valuation cratering amid regulatory uncertainty, political tension, and investor fear. And yet, I was all in—convinced this Chinese juggernaut was dramatically undervalued. I didn’t know it at the time, but I was about to learn three vital principles that would shape my entire investing philosophy:
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Even when you're confident in the business, you can be wrong.
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Don't go too heavy too quickly.
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Cap your exposure to any single investment based on your overall portfolio.
Alibaba’s business fundamentals haven’t disappointed. But my investment results? Let’s just say they haven’t mirrored the brilliance of the underlying company. In this post, I’ll unpack why a wonderful business doesn’t always make for a wonderful investment—and what my journey with Alibaba taught me about patience, portfolio management, and market sentiment.
Act I: Conviction Without Restraint
In the fall of 2020, I began building my Alibaba position. At the time, U.S. stocks were surging to new highs, and China—by comparison—seemed like a contrarian bet. I believed Alibaba, a company with a wide moat, dominant market position, and growing revenues, was mispriced due to macro fears rather than business fundamentals.
I leaned heavily into my conviction. And while that conviction hasn’t been invalidated, the timing—ah, the timing—was brutal.
Despite Alibaba's strong balance sheet, its continued revenue growth, and its sprawling empire across e-commerce, cloud computing, logistics, fintech, and more, the stock became the poster child for geopolitical risk. Antitrust investigations, Jack Ma’s disappearance from public life, delisting fears, and tightening Chinese regulation created a perfect storm. Alibaba’s share price collapsed by more than 70% from its highs.
Yet I held on. And learned.
The Hard Lessons: Humility, Position Sizing, and Patience
I now follow the “5% rule” from Guy Spier—a principle I wish I had embraced earlier. His approach is simple but effective: begin with a 5% position in any company. If you're wrong, the pain is survivable. If you're right, there's still plenty of upside.
Here’s what a more measured, disciplined approach would have looked like in my own Alibaba investment, assuming a $95,000 portfolio and a max allocation of $5,000:
Had I followed this staggered approach, I would have averaged a cost basis of $92.33—a far better setup than front-loading during the early stages of the collapse. Most importantly, the risk would have been manageable. No sleepless nights, no panic selling.
As Charlie Munger wisely said:
"The big money is not in the buying and the selling, but in the waiting."
More Than E-Commerce: Alibaba’s True Scale
For investors stuck on the “Chinese Amazon” comparison, it’s easy to miss just how massive and diversified Alibaba is.
Alibaba operates a sprawling ecosystem:
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E-Commerce: Taobao and Tmall dominate Chinese online retail.
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Cloud Computing (Alibaba Cloud): A leading provider in China, expanding across Asia.
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Logistics (Cainiao): A powerful logistics network for cross-border trade.
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Fintech (Ant Group): Despite regulatory setbacks, it remains a vital player in digital finance.
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International Ventures: Lazada in Southeast Asia, Trendyol in Turkey, and Daraz in South Asia.
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AI & Data Intelligence: Investments in LLMs, smart cities, and AI-driven retail.
This is not a one-trick pony. Alibaba is a conglomerate with tech, infrastructure, and fintech tentacles—one that’s still growing revenue and deploying capital wisely. Since 2020, Alibaba’s revenue has nearly doubled. That kind of growth during a regulatory storm is nothing short of remarkable.
Common Sense Still Wins
Throughout the downturn, one sign kept reinforcing my bullish view: share buybacks.
Despite the noise, Alibaba’s management consistently repurchased stock, signaling strong confidence in the company’s long-term outlook. From 2021 to 2024, the company spent over $43 billion on share repurchases—a staggering amount for any business, especially one supposedly under siege.
When investors abandoned ship, Alibaba’s own board doubled down. If nothing else, this move underscored that insiders saw value where the market saw risk.
The company clearly has the cash to do it. Alibaba’s balance sheet remains rock-solid, with more than $60 billion in cash and short-term investments and minimal debt relative to its cash position.
Shifting Sentiment: From “Uninvestable” to AI Darling
Just a year ago, Wall Street’s view of China was grim. Talk of delistings, regulatory clampdowns, and geopolitical decoupling was everywhere. China was considered “uninvestable.” Yet in 2024, sentiment flipped almost overnight. Why?
Artificial Intelligence.
The same analysts who cried foul are now bullish on Alibaba’s AI ambitions. The company is building its own large language models (LLMs), integrating AI into its e-commerce logistics, and offering cloud-based AI tools across Asia. The pivot is paying off—not only in sentiment but also in stock performance. Alibaba’s stock has surged nearly 70% YTD in 2025.
Still, investors need to keep their expectations grounded. Sentiment is fickle. It changes faster than fundamentals.
Valuation: Still Undervalued—But No Longer Dirt Cheap
After four years of underperformance, Alibaba is finally gaining traction. But is it still undervalued?
Let’s run a Discounted Cash Flow (DCF) analysis using two scenarios—normal and best-case—to determine intrinsic value:
Assumptions for Both Cases:
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EPS growth of 19.1% CAGR for the next 5 years
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Slower growth (halved) in the subsequent 5 years
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Terminal P/E Ratio: 15 (normal case), 18 (best case)
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Discount Rate: 10% (reasonable benchmark)
Normal Case:
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Intrinsic Value: $154.33
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Current Price: ~$144 (as of March 2025)
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Upside: 7.2%
Best Case:
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Intrinsic Value: $193.71
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Upside: 35.3%
These are conservative estimates. The market is starting to price in some of Alibaba’s upside, but not all of it. Based on the current environment, Alibaba is no longer a screaming buy—but it’s still a good buy for long-term investors.
Risks: They Haven’t Gone Away
Let’s not sugarcoat this. There are still risks—and some are unique to investing in Chinese companies:
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Regulatory Uncertainty: Chinese tech regulations can change rapidly. Crackdowns may return.
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VIE Structure: Foreign investors don’t own direct equity in Alibaba. The government could revoke these contracts.
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Geopolitical Tensions: U.S.-China relations could sour again, leading to sanctions or delisting threats.
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Commerce Saturation: E-commerce growth is slowing in China; future growth will depend on AI, cloud, and global expansion.
Alibaba acknowledges these uncertainties in its filings, warning of “unpredictable interpretation and enforcement” of PRC laws. These risks are real. But if you’re investing in Alibaba, they should already be baked into your expectations.
Why I’m Still Holding
Despite the volatility, I’ve never sold my Alibaba position. That’s not stubbornness—it’s conviction tempered by learning. I now follow clearer investing rules:
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I assume I could be wrong—always.
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I build positions gradually, not all at once.
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I cap exposure to any one stock at a defined percentage of my total portfolio.
Alibaba has become a cornerstone case study in my evolution as an investor. It’s taught me that even when you’re right about a company, it doesn’t mean you’ll be rewarded immediately. Investing isn’t just about identifying great businesses—it’s about understanding when the market will finally agree with you.
As Warren Buffett and Charlie Munger have often reminded us:
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
That’s exactly what Alibaba represents today.
Final Thoughts: A Great Teacher, A Fair Investment
Alibaba was never just another stock pick—it became a classroom for personal finance education. Through it, I learned patience. I learned how to weather sentiment cycles. And I learned the brutal truth of investing: you can be right too early and still be wrong in the eyes of the market.
Today, Alibaba is a fair buy with exciting long-term prospects in AI and cloud. It’s no longer the ultra-bargain it once was, but it’s still a wonderful business. For those with the stomach for geopolitical risk and a long time horizon, it offers asymmetric upside. For me, it remains a hold.
Looking back, I don't regret buying Alibaba. But I do wish I had invested in it with more wisdom and restraint. Now, I’m grateful for the education.
Because in the end, a great investment isn’t always about profit. Sometimes, it’s about perspective.
Disclosure: I’m long Alibaba. This article reflects my personal opinions and is not investment advice. Always do your own research.
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