NETFLIX Inc, Meta Platforms Inc (Formerly Facebook) and Alibaba Group Holdings Ltd. What do these names have in common?

       They are household names in the technology space with global footprints. The majority of the people today who have access to the Internet would have seen or used the services provided by these companies one way or the other.

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       Apart from that, these are highly valued listed companies which are considered blue chip in nature.

       Most of the funds and professional money managers would have exposure to these stocks if they have the mandate to invest in technology or foreign stocks.

       In fact, the owners of these three companies are ultra-billionaires who came from humble beginnings and are the epitome of entrepreneurship in their own way. There is no doubt that these three companies are big-name stocks.

       In the past one year, there has been an unfortunate similarity between these three companies as well. All three of them have faced a sudden and major selloff overnight which caught a large portion of the market participants by surprise.

       The magnitude of the plunge in their share price was extremely significant that it affected the performance of many fund managers as well as retail investors.

       Taking a hit

       Unless these investors have held long-term positions with an extremely low cost or are well hedged, most would have seen their books hit by the selloff.

       The table shows the variance between the 52-week high of their respective share prices against the share price today.

       What is more telling though is the velocity of the selloff. Netflix lost US$50bil (RM205bil) in market capitalisation within a day following the recent fourth-quarter earnings report, where it missed consensus estimates for earnings, subscription growth and weaker forward forecast.

       Meta made history when the company lost US$232bil (RM951bil) in market capitalisation within a single day when it surprised the market with a US$10bil (RM41bil) loss for investment made into its metaverse venture.

       This was the first ever fall in new user growth and an alarming warning on the future earnings impact from privacy policy changes by Apple iOS and Google platforms.

       As for Alibaba, the share price has been bleeding over the course of more than one year following China’s regulatory action against its prolific founder, Jack Ma and industry.

       Was the sell-off justified?

       Whenever a company’s share price takes a hit, it is very important to ask oneself this question. Only by looking for answers to this question that investors can truly understand the worth of a company in dire times.

       We all know that the market can be highly irrational at times and move without an ounce of logic.

       If we were to follow the market movement all day long, it would be virtually impossible to invest rationally.

       There are times when one should ignore market irrationality but there are also times when one should be fully cognisant of what is happening in order to avoid a complete wipeout.

       Let’s take Alibaba as an example. Charlie Munger (the long-time business partner of Warren Buffett), who is one of the biggest names in the investment world and the school of thought of value investing, has been averaging down his position in the company ever since the share price plummeted.

       Through his vehicle, Daily Journal Corp where he is the chairman, Munger has doubled his stake in Alibaba as the share price continues to skid.

       It is possible that he sees things that most investors do not amidst the crackdown by regulators in China.

       After all, Munger is one of the rare prominent Americans who is vocal about his praise towards China’s governance over the years.

       Netflix, my personal favourite US technology company by virtue of it providing the greatest entertainment value to my family and myself, has also seen another renowned activist investor Bill Ackman taking a large stake during the recent selloff.

       Ackman bought a significant amount of Netflix shares amounting to US$1.1bil (RM4.5bil) which provided the support and confidence to market investors.

       In his letter to shareholders, his justification to buy into Netflix can be summed up in the following remark, “Many of our best investments have emerged when other investors whose time horizons are short term, discard great companies at prices that look extraordinarily attractive when one has a long-term horizon.”

       Of course, there are arguments against Netflix such as increasing competitors eroding its market share and margins with the likes of Disney+, AppleTV+, HBOMax and Amazon Prime Video amongst others. In addition, with the pandemic nearing its tail end and people getting out of their homes and back into the world, demand would fall.

       However, what I like most about Netflix is the management, namely, Reed Hastings and his team’s ability to pivot throughout the company’s history.

       Netflix is more than just a user-friendly streaming service. It is by far the best content generator and production company which has the affinity to deliver content catering to global audiences’ varied taste while winning market share in respective local markets at the same time.

       A very simple example would be Netflix being the first adopters of South Korean television content and getting involved in production, marketing and selection. Squid Game is only one out of the other countless successful shows on its platform.

       It is an entertainment powerhouse in its own right.

       When would be a good time to buy?

       Using Meta for illustration purposes, I for one have never been a big fan of Facebook, although when I first entered university, my university was among the earliest adopters of the platform and Mark Zuckerberg was somewhat the folk hero to every kid who had an entrepreneurial dream.

       Yet, over the years, the values espoused by Facebook have been somewhat disappointing. The privacy issues and lack of protection for the users of his platforms are the biggest turn off for me.

       Thorny incidences such as Cambridge Analytica harvesting 87 million users’ data, spreading of fake news during Trump’s Presidency and anti-vaxxers during the pandemic made me stay away from investing in Facebook.

       Although the share price has retraced significantly and Meta still has 3.5 billion users across all platforms within its company, I see no incentive to take a position unless and until the company changes its approach towards the protection of user data.

       One of the more common advice familiar to new retail investors would be to “avoid catching the falling knife”. No one knows where and when is the bottom for a share price.

       The safer course of action is to always let the share price settle. At times, this runs contrary to the notion of being a contrarian. It is my firm belief that if fundamentally and structurally nothing has changed, then one should not change their investment thesis towards the companies in their holdings or a company that they would like to invest in just because of share price volatility.

       Most definitely, this is easier said than done. Experience will help but ultimately, if the company is one that is fundamentally sound and has good management, a selloff in the share price simply provides a better entry price and wider margin of safety.

       A long-term investment horizon would also help ease the decision-making process in buying beaten-down stocks.

       Ng Zhu Hann is the CEO of Tradeview Capital. He is also a lawyer and the author of “Once Upon A Time In Bursa”. The views expressed here are his own.