Sketching Plans to Research Chinese Tech | Alibaba

So I want to understand what will happen to Chinese stocks moving forward. Specifically, Chinese tech stocks. And in this conversation there’s some nuance between Chinese consumer tech stocks, and Chinese research-hardware-manufacturing tech.

I’m motivated to find out because China is a big part of the financial market. So I want to:

1. Make money with good bets
2. Understand how the world works from first principles – so I can make more predictions in more than just financial markets
3. And because its fun to understand the big underlying mechanisms of the world, if there are any

To narrow our domain we can first focus on Alibaba and TenCent, but other firms can be introduced later on.

See: How Alibaba Makes Money: core e-commerce, cloud computing, consumer services (investopedia.com)

With a quick google I can see that Alibaba makes money from its e-commerce platform, catering basically to the Chinese market exclusively.

And this segment consists of: Taobao, tmall, Taobao deals, taocaicai, tmall supermarket and so on.

Now what it seems that I should look out for are:

1. First, whether there’ll be more or less regulatory crackdowns
   a. Since that happened fairly recently and its no guarantee that it’ll stop it seems
2. Second, how strong the Chinese economy is, seeing as how the firm caters mostly to the domestic market
   a. And maybe in looking into this we’ll also see how much room there is for the other segments to grow
   i. Kinda like how amazon managed to grow its cloud computing business
3. And lastly, how geopolitical tensions will play out
   a. And geopolitics means whether there’ll be more trade with the rest of the world, and if there will be regulations that block that trade or not
   ii. So the logic is it doesn’t matter if China wants to reach out to the rest of the world – which would help Alibaba perhaps, it doesn’t matter if America wants to isolate Chinese trade, with sanctions or re-emergence to free trade areas
   ii. And side note: politics does matter but we’ll work to understand it, not spout an opinion – it doesn’t really help analyses in the making

Some ground rules to define our strategy:

1. I assume we want to make some money, or at least we should work to make a prediction that is actionable,
   a. We can then measure how good our analysis is if we offer up a concrete judgement slash opinion
2. Our time frame should be about somewhere between 3-6 months and a couple of years at most
   a. Anything shorter and I'll need to do this as a fulltime job
   b. Any longer and judgements will probably lose any force
3. I’ve been making lists of three so far but I can’t think of anything else, so I’m just filling this in for posterity

Ok so,

Some intuitive things I want to explore:

1. Dan wang’s analysis on Chinese strategy
   a. It’s a good piece I found that talks about how a focus on hard research and maintaining strategic capabilities is the guiding force behind Beijing’s actions
   i. And it’s contrasted with observations of America’s slide into financial services in the name of efficiency
   ii. Which really means an offshoring of supposedly inefficient manufacturing
   iii. But as we’ve seen I’m not really sure if outsourcing your supply chains is strategically sound – I'll probably have to define strategic properly so it makes more sense as well
2. I'll also start out with the economist’s sketching of Chinese regulations, if any
3. And mix that in with some asset management notes
   a. Though reminder: I’m more focused on the causal chain first, more than massaged numbers in fancy slide decks

And how I'll go through this process is:

1. First gather information to figure out the landscape is
2. And this landscape is basically:
   a. Internally, how does the firm generate revenue
   b. And externally, competitors and the current state of affairs so far
3. I then want to identify the biggest factors that will affect its revenue going forward
   a. And this will be found by looking really closely at the business model of the firm
4. After identifying the factors, I'll work through predicting what will happen in the future
   a. This is probably the most useful thinking of the whole model
5. I then take all of these factors together and try and build a working model on the company
   a. Which will, hopefully, spit out a direction for the stock price to move
   b. Maybe create some secondary implications that we can use elsewhere
   c. And point us in some interesting direction for other models or other phenomena

That’s about it for now, some personal notes are to

1. Keep focused on actionable insight – which means building the model more than getting bogged down in endless numbers
   a. Not to say numbers are bad, but we shouldn’t put the cart before the horse
2. Second, to have fun and not kill myself doing things overly formally