Strong Earning is Not that Important when considering to Invest

While it is true that Alibaba earnings have grown 20%, its share prices have fallen by 12% since then.

One must be wondering if the age old adage of "Earnings are what matters most for a company"

In Truth

To us small investors, sadly, earnings may not be the most important determinant for us when investing in a company.

For Alibaba, it is in an unfortunate scenario where the country it operates is managed by an incompetent communist government whose minute policy reaction to its growing credit crisis has spooked international investors away from China. China citizens are unable to redeem their unit trusts and companies (even outside of Real Estate) are on the brink of default.

Perception of a Country Economy is a factor and will affect a company shares

Structure of a Company

This problem is localised and tends to be for Singapore companies. Due to the lack of morals of businessman (who seem to be learning from our ruling politicians as well) and weak investor laws for minority interests, there have been numerous cases of businessman who use their controlling stake to oppress the minority shareholders by:

(i) Giving little dividends while paying themselves a high annual salary as executives with a controlling stake; the most recent example is Best World who pays themselves as the third and fourth highest executives in Singapore with 20% of the company net profits, which is disproportionately higher than the rest of other SGX listed companies. Best World trades at a single digit price earnings but with 0% dividends.

(ii) Delisting companies at low price book value and extending the offer for an unreasonably long time while throwing in exceptional financial losses to scare investors to acceptance

(iii) When their undervalued land are about to be sold, they will mount a delist in order to realise the value. And surprisingly, the independent hired financial advisor will adjudge the delisting as a fair offer.

Unfortunately in Singapore, being devoid of morals and ethics is common among businessmen. This results in undervalued shares

Structure of a Company that is formed not in the favour of minority interest favour is a factor