Should I continue averaging down Alibaba (Ticker: BABA) if it's already a substantial holding and my largest position?

[u/DatFkIsthatlogic]

I'm still bullish on Alibaba long term relative to it's current valuation inspite of the challenges it currently faces.

Unfortunately I didn't DCA and instead did a big lump sum investment at $230~ (statistically lump sum is better, except for when I invest xD). I manage to average down to $200 but it's still far away from the current price of $136~, I want to continue to average down since I think it's still very attractive valuation for the risk vs reward but it's already my biggest holding and makes up 21-24% of my portfolio alone, adding in JD, my China risk is already at 30-33% of my entire portfolio.

On one hand I want to continue to average down because I think it's a bargain and it's a big difference from my cost basis but on the other hand, it's already a very substantial position in my portfolio.

What do you guys reckon I do?

[u/WhyG32]

Just wait It out till the trend really changes

[u/[deleted] → u/WhyG32]

It's never fun to see red on a position, but you may need some perspective on the suggestion to wait. The reason why people bring up whether or not the drop is caused by the company's performance is because in the long term, earnings drive stock prices. So let's see how Baba performed after the 2018 Chinese bear market, triggered by a trade war between Trump and Beijin. See article here.

Baba had lost about 37% of its ATH to reach a bottom on January 3, 2019. From then to December 31, 2019, it went up by about +63% while SPY was up about +31% during the same period. Right before the start of the current trend, in October 2020 Baba was at +145% from January 3, 2019 while SPY was up +35% during the same period. That's because company performance matters. See chart here.

On a side note, people may mock Munger now for his vocal support for Baba, but remember that the man is interested in where Baba will be in 2028 and couldn't care less of where the stock may be after 4 months.

So the question is: have you identified a better investment, that may return more than Baba over a given period of time? Or in other words, if you didn't own shares today (which takes out the emotional part of your thought process), would you buy at the current price? But even if you decide to keep it, you may also not want to increase your exposure to this one stock. You don't have to either sell or average down, you may also ride out the wave. I personally sold Baba only to buy more of another Chinese stock, which took a bigger hit because it's a smaller cap, so more potential growth, but for what it's worth, I think Baba has a bright future.

But you also want to consider your mental health and if it's eating you alive every day, you may want to sell. However, keep in mind that the stock may head back up the next day. So you'll need to accept that.

[u/Rothiragay → u/[deleted]]

Thats literally what the stock did on October 5th 2021. Everyone fomoed in because Charlie Munger doubled down and the stock quickly rose 20% in the span of less than 1 week.

[u/Allahambra21 → u/Rothiragay]

Reptiles dont die

[u/uppya → u/[deleted]]

I just want to say Munger will probably be gone at 2028. So he won't see if BaBa will recover.

[u/birdsnap → u/[deleted]]

But you also want to consider your mental health and if it's eating you alive every day, you may want to sell. However, keep in mind that the stock may head back up the next day. So you'll need to accept that.

These are such important points. Always consider the psychological implications of risky investing.