A speculator buys stock based upon a guess that someone will pay more for it in the near future (usually based upon factors that are not predictable such as quarterly company performance/announcements or broader economic/market performance/announcements). Speculators fail to recognize that even if their guesses about short term performance are correct, the short term price movements of stocks in reaction to such performance are highly unpredictable because they are impacted by far too many factors and expectations to possibly assess outcomes with any accuracy. An investor buys a share in a business to benefit from the compounding value created by the company over long periods of time (wealth is created by a high average annual compounded return on a portfolio over a number of years - more to come on portfolio building to achieve that objective in future articles). In contrast to speculators who want their stock's prices to quickly rise, investors should recognize the opportunity created by a falling stock price to buy a larger share of a business at a better price.
Since writing about JD.com in June, the price of its stock has declined. This is largely the result of a combination of short term company results and general market and currency pressures resulting from the trade issues occupying the headlines and broader economic issues in China such as fears of a slow down and concerns about debt levels. Nothing has changed significantly in terms of the long term competitive position or valuation of JD.com. JD.com has a growing base of loyal customers with a large runway ahead. Although considerably smaller than Alibaba, it has and continues to invest in an advantaged logistics/supply chain structure and a mere fraction of Alibaba's valuation. At a current market valuation of less than $45 billion (USD), JD.com appears even more reasonably priced relative to its intrinsic value than it was in June.
Disclaimer: the author and the author's family members own shares of JD.com. The author has not been compensated to write this article.
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