There was an interesting article in one of newspapers concerning Alibaba, the Chinese e-commerce company which is soon to go public. The article was written by Nathan Vanderklippe title Goldman’s Alibaba regret, Globe and Mail July 5, 2014. It is expected the total value of the price of the shares will be the biggest initial public offering (IPO) in history. Alibaba will be worth north of $200 billion should the IPO goes as expected. There are many ways to play an IPO and one method is to look at which institutions who own the existing private shares – three of the existing companies are Fidelity Growth Partners Asia, Softbank and Yahoo. Softbank is a Japanese phone and internet giant. Softbank invested $20 million for a 34% share and the investment could be worth $ 60 to 70 billion. Yahoo holds 22% of the shares.

One would expect the shares of the companies will increase giving the value of holding of the stock. One company which held shares in the past and sold was Goldman Private Equity.Peter Lynch, a former Portfolio Management with Fidelity talked about investing in multiple companies to gain increases in stock price. At the time one of his favourites were the emerging cell phone companies of the world including in Mexico. The big investment houses are continually pitched and at the time nobody knows which one is the best company or which company will emerge to be a leader. When there is a rush into a space where there is great opportunity, there are many companies trying and few succeeding. In the article is was noted in the year 2000, there was about 2,000 companies with a similar model as Alibaba, which would company would you choose with limited resources? Goldman was receiving 500 business plans a week and had to narrow the field. Money is to be made, but equally lost. Goldman bought into Alibaba and when it sold was satisfied to make 7 times on its $ 2 million investment. In 2014 there would have been an opportunity to make 10.000 times its investment. Every fund has different time frames, and sometimes the desire is to get in and out, to move onto the next investment opportunity.

Linking to dividend paying companies, if you buy these types of companies, you will miss the generally miss the excitement of IPO, but most companies have investments in other companies which benefit them. It is very difficult to pick the one or two companies out of the 2,000 which at the time seem similar. As the company grows, different management styles are needed, can the company adapt? many different flowing parts are needed for the company to transform from a start up to more mature company. It is easier to invest in the mature company which has an existing profitable centre and its focus is to keep it. It is easier to investigate if the company is keeping it or not. IPO are exciting, brokerage companies need them to make money, but your concern is money going into your account and for most people the best choice is dividend paying companies.

There are more questions than answers, till the next time – to raising questions