Enduring short term pressure to tap long term potential

May 20, 2019 10:35
Tencent reported weaker than expected quarterly results as a result of disappointing advertising revenue, but its outlook looks bright. Photo: Reuters

As a long-term investor, I don’t take an all-in or all-out approach when it comes to quality stocks.

Even if there are dark clouds on the horizon, selling a position in the hope of buying it back for a small trading profit is not a good idea. Short-term movements are often hard to predict.

Take Alibaba as an example. Altaba, the Yahoo spin-off, said it would cut its stake in Alibaba. There could be quite a bit of pressure on the stock price, but Altaba’s sale of Alibaba shares is already public information.

I would rather not do a short-term trade to capture, say, a 2 to 3 percent downward movement. Experience shows that one might pay a hefty price for such a shortsighted move.

Alibaba’s short-term pressure may also hurt Tencent Holdings (00700.HK), of which I am a fan and a long-term investor.

In view of its weaker than expected quarterly results as a result of disappointing advertising revenue, Tencent might be less than desirable in the short term.

But I am not too worried. Tencent has just secured regulatory approval to start charging for Game for Peace. It’s a sign the tech giant’s gaming revenue will soon improve.

Moreover, its WeChat and several mini programs are likely to gain more share in the advertising market.

Though trailing Alibaba, Tencent’s cloud business is expanding fast and could prove to be the company's next growth engine.

That said, I am not suggesting that investors should increase their holdings of these two tech giants before there is more clarity about the impact of Altaba’s unloading of Alibaba shares.

We might have to pay a higher price if we wait awhile, but if the sentiment turns better and the upward momentum becomes clearer, such a higher price will be worth it.

This article appeared in the Hong Kong Economic Journal on May 17

Translation by Julie Zhu with additional reporting

[Chinese version 中文版]

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Director, Asset Management at Ample Capital Limited.