Articles by mgedwards

Baidu revisited

I didn’t think I would revisit the subject of Baidu so soon, but after Baidu.com skyrocketed 354% in its first day of trading on the NASDAQ, I knew I had to write about it tonight.  Most of the World Adventurers blog visitors this week seem to want to know what I have to say about Baidu, so I just had to write something about it.  For those tired of reading about financial topics, I promise to write about another subject tomorrow.
 
In case you’re wondering whether you should still buy Baidu, I want to let you know that think it would be crazy for you to buy shares of Baidu at $122.54 per share.  I reiterate that I would not pay more than $25/share for share this company, no matter how explosive demand appears to be.  If your heart was set on buying shares of a Chinese Internet play, then check out Baidu’s main competitors, Sina.com and Sohu.com.  Their multiples are much more reasonable than Baidu’s.  Baidu’s astronomical share price primarily reflects two unproven assumptions:  1) Google will eventually buy out Baidu; and 2) Baidu will be the next Google.  Neither assumption is necessarily true.  Right now, there is just too much risk involved in buying Baidu shares.  Yesterday shares of Baidu.com topped out at $151.21 in mid-day trading and ended the day much lower.  Suckers who bought shares at $151 are likely wondering now why that bought into the hype and bought so high.  I’m positive that the price will drop over the next few weeks as the hype subsides, perhaps by as much as 50%.  Baidu.com’s first day share price gain was the 18th highest in history, and it was the hottest foreign IPO in history.  That is an amazing achievement for a company with just $15 million in revenues.  Considering that the 17 other hotter IPOs occurred during the dot.com boom era, and Baidu far outclassed Google in its debut, its achievement is even more noteworthy.  At the same time, it’s important to remember that this is no longer the dot.com era, when share prices of Internet companies floated into the stratosphere.  In this brave new post-dot.com era, share prices are much more firmly anchored to business fundamentals.  One bad earnings announcement will deflate Baidu’s share price fast as quickly as it was inflated by hype.
 
As for me, I did not buy any shares of Baidu because I kept my bid at $25/share.  Sometimes you win , sometimes you lose.  However, I am very happy to know that I was able to anticipate another winning initial public offering.  Baidu caught my eye weeks ago.  It’s just too bad that so many other investors anticipated it too.  I’ve been pretty successful at sifting through all the IPOs to find the gems.  I bought into Google and Morningstar, two great IPOs, and I passed on CryoCor, which is now hovering $3 below its IPO price.  I most certainly would have participated in the Baidu.com IPO if I had had the opportunity to do so.  However, Baidu participated in a traditional IPO led by its underwriters, Goldman Sachs and Credit Suisse First Boston.  As I have often mentioned, I am no fan of traditional IPOs.  Aside from enriching company executives, angel investors,  investment banks, lucky guests, and a few high net-worth individuals, traditional IPOs rarely benefit the average investor.  They don’t benefit the company, either.  The company sells shares at an intial price, in this case $27 per share.  When Baidu’s share price skyrocketed to $121.22, the only ones who benefitted were those individuals fortunate enough to be allocated shares.  That is why I am a firm believer in Dutch auction IPOs, which allows all investors an equal opportunity to bid on shares, and the price more accurately reflects demand, giving participating companies a fairer price for their shares.  Traditional IPOs are very elitists, while Dutch auction IPOs are much more democratic.
 
If you want to participate in IPOs, remember that they are inherently volatile and are prone to underperform.  Most companies’ share prices dip below the initial price after going public.  Thus, you need to be diligent and know a company’s prospects, weighing the risks with the benefits when considering whether to buy on the first day of trading.  It is often better to wait and see how the stock performs, such as I did with DreamWorks Animation and Cogent Technologies (I bought DWA three weeks after IPO, Cogent seven months afterward).  Because it is very difficult to receive an allocation of shares in a traditional IPO, you will have to buy on the first day of trading.  Bid low at first, wait until you assess the price at opening, and determine whether you can stomach buying at a much higher price, then up your bid price.  If the price hovers around the initial price, or if it dips below the opening price soon after trading begins, then don’t bid at all.  Wait.  A hot IPO is hot from the get go; lukewarm IPOs have very little upward price momentum.  If you want to participate in an initial public offering, open a brokerage account with a broker such as E*Trade that participates in IPOs, or open an account with W.R. Hambrecht.  Hambrecht has a stellar Dutch auction IPO program called "OpenIPO."  I have an account with Hambrecht and have been very pleased with the results.  Not every IPO is promising, so be patient.  At present, I am keeping my eye on only one upcoming IPO–Tim Hortons.  If I see any other promising IPOs, I will let you know.
 
The market is so fickle!  The economy added 207,000 new jobs last month, 20,000 more than expected.  That sparked fears that the Federal Reserve would continue to raise interest rates, sending U.S. stocks lower on Friday.  Job creation has generally lagged expectations since 2002, and each month the markets punish investors when the job numbers come in lower than expected because of fears of a weak economy.  Now they’re too high.  You can’t win!  C’mon, investors.  Wise up.  I for one am glad to see more jobs created, even if the Federal Reserves continue to raise rates.  Fed Chairman Alan Greenspan has said as much.  The market needs to accept the fact that oil will continue to be $60+ a barrel for the foreseeable future and that the Fed will continue to raise interest rates.

End of a long week

I just woke up from a long nap and still feel a bit
groggy.  My drowsiness is a natural reaction to what was a very
long week.  We are short-staffed at the office while a colleague
is on vacation, and we have to do about a
third more work per person while they’re gone.  Today I went
to Jongam in northeast Seoul to visit an American who’s in
trouble.  I drove through one of the nicest parts of Seoul to get
there, an area known as Seongbuk.  It’s situated in the hills just
northeast of the Blue House, the Korean presidential
residence.  Seongbuk felt a bit like Beverly Hills,
California, with ritzy, gated homes clinging to the hillsides. 
I’m sure that many of Korea’s wealthiest executives make their homes in
those hills.  The commercial area of Seongbuk reminded me of an
upscale version of Adams Morgan, one of the more colorful areas of
Washington, D.C.
 
When I returned to the office, I wrapped up my work for the week
and waited to join my family and some coworkers for dinner.  My
office mate organized a get together for new arrivals and their
sponsors.  We met together after work and went together to Bukchon
Kalguksu Restaurant (북촌 갈국사) just to the east of Gyeongbok
Palace.  Handmade noodle soup (손갈국사) is this restaurant’s
specialty.  The soup and mandu (만두), or minced meat wrapped in
wonton wrappers, were delicious.  I shared some soju (소주), a
smooth, potato-based liquor, with a colleague.  It was
nice to have some soju for the first time in a long
time.  Unfortunately, between the soju, hot weather, and spicy
food, I felt a bit light headed.  Perhaps I overheated, or maybe I
was just tired.  I felt really unsettled while I was eating and
couldn’t wait to go and get some fresh air.  We went home soon
thereafter, and I headed to bed and took a long nap.  I feel
better now.  I’ll still sleep very well tonight.
 
My wife asked tonight whether her sister, who lives in
Shanghai, could come visit us in Seoul.  I agreed.  She
gave her sister a call tonight to see if she’s interested, and she said
yes.  We will have to write a letter on her behalf inviting
her to visit us.  I’m confident she will be eligible
to visit us in Korea.  In the past, she has been refused a
U.S. tourist visa; however, I’m optimistic that this time she will
qualify for a Korean visa.  If she gets her Korean visa, I think
in the long run it will help her qualify for a U.S. tourist visa if she
wants to visit us in the United States.  She definitely does not
want to immigrate to the U.S., but the burden of proof
for Chinese who want to qualify for visas to visit the U.S. is
very, very high.  Visiting Korea and returning to China will show
that she has traveled overseas without immigrating.  It gives
her a track record.
 
Baidu.com‘s underwriters seem
to be getting a bit greedy.  If you recall, I wrote a blog entry
earlier this week about whether to buy Baidu.com.  It seems that
Baidu upped its IPO price to $27/share because it has generated an
amazing amount of buzz.  I put in an order to buy it at the high
end of its price range yesterday–$25/share.  $25/share is already
overpriced, in my opinion.  $27/share is merely hype
chasing.  I refuse to up my order to buy at $27/share.  My
blog entry on Baidu.com seems to be getting a lot of traction on Google
with so many curious folks doing searches, trying to figure out whether
to buy the American Depository Shares of a relatively unknown Chinese
search engine company.  Between my discussion of Baidu and
CNOOC, World Adventurers had more hits this week than it usually
has in one month.

What will Korea clone next?

This afternoon, online magazine Slate highlighted my previous blog entry on mergers and acquistions in its feature, "today’s blogs."  Very cool!  I am honored.  Here’s the link in case you want to read the article:  http://slate.msn.com/id/2123951/.  It seems that what I thought would be a boring subject to read actually got some traction in the blogosphere.  I am apparently in the minority when it comes to opposing CNOOC’s merger with Unocal.  For those visiting World Adventurers for the first time, welcome!  I’m glad you stopped by to visit.  Post a comment.  Let me know where you’re from.  Surf on over anytime.  Every day I try to write about something different and (hopefully) interesting.  The general theme of my blog is Korea because I’m here for two years with my family, but I try to mix up the theme each night.
 
Here’s a hot topic related to Korea that has made the U.S. news headlines as well as the butt of late night comedy jokes.  Korean cloning pioneer Hwang Woo-suk and his team successfully created the world’s first cloned dog, a 14-week old Afghan hound named "Snuppy."  Dr. Hwang, a professor of veterinary science at Seoul National University, also led a team of scientists in producing the world’s first cloned human embryos.  They also successfully harvested the first stem cells from cloned human embryos.  For better or for worse, Dr. Hwang is quickly leading Korea to the forefront of cloning science and stem cell research. 
 
Stem cell research and cloning are extremely controversial topics in the United States.  This is underscored by the fact that U.S. Senate Majority Leader Bill Frist (R-TN), a social conservative, was not invited to an upcoming Evangelical rally in his home state of Tennessee following his announcement that he supports expanded human embryonic stem cell research.  Likewise, Ron Reagan, Jr., son of President Ronald Reagan, devoted virtually his entire speech at the 2004 Democratic National Convention to supporting stem cell research.  It’s not my intention to focus on the ethical controversies surrounding cloning and stem cell research.  Rather, I want to highlight the differences between Korean and American attitudes on these subjects.  I won’t say what I believe is right or wrong.  I leave that up to you, dear reader, to decide for yourself. 
 
Korea is a very family-centric culture.  Families, particularly children, play a central role in Korean society.  Family-related issues that make the news headlines in Korea would leave Americans scratching their heads, confused, and amused.  For example, the Korean Supreme Court recently ruled that women are equally entitled the share a family’s inheritance and cannot be discriminated against based on gender.  The Korean Family Census Register (FCR) is the official record documenting Korean families.  Until recently, women could not be the head of a household on an FCR, and a single mother had to either designate their father or son to be the head of their household.  Changing the law to allow women to head households in Korea created a surprising amount of controversy in Korea.  When a foreigner becomes a Korean citizen, they must adopt a Korean surname.  There are no Korean Joneses or Smiths, only Kims, Parks, or Lees, etc.  Preservation of the family is ingrained in Korean culture and rigidly enforced by American standards.
 
Interestingly, hot button, family-related issues in the U.S. such as gay marriage are rarely considered in Korea.  It is very unlikely that gay marriage will be legalized anytime soon in Korea.  Abortion is not a controversial, divisive topic in Korea as it is in the U.S.  According to the Korean calendar, a child born in Korea is considered one year old at the time of birth.  However, Koreans seem to treat life before birth differently than many Americans do.  Family values are extremely important in Korea; yet at the same time, Koreans generally support cloning, stem cell research, and abortion.  Koreans tend to approach embryonic and fetal research from a scientific rather than moral perspective.  They tend to support the scientific benefits of such research and do not consider such research to be a moral issue.   Koreans’ attitudes in this respect are neither liberal nor conservative, at least by American standards.  Their attitudes are simply different from those of most Americans.
 
This brings me to the question in the title of my blog entry–what will Korea clone next?  As I mentioned in my July 30 entry on Children’s Grand Park, it would not surprise me at all if Korean scientists will be the first to clone human beings.  Americans make movies about cloning, and Koreans just do it.  They may first move on to another animal to clone, perhaps something bigger such as a bear, but eventually they will likely clone a human.  One wonders if the world is ready for that reality.