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Motley Fool; The Amazon of China?

A child stands near the mascot for Chinese e-commerce giant JD.com and the words for “Be Number One” at its headquarters in Beijing on Nov. 11, 2017. (Associated Press)
A child stands near the mascot for Chinese e-commerce giant JD.com and the words for “Be Number One” at its headquarters in Beijing on Nov. 11, 2017. (Associated Press)

You may not have heard of JD.com (Nasdaq: JD), but plenty of retailers in China have, as it’s much like the Amazon.com of China. Along with Alibaba, which is a lot like eBay, JD is one of China’s top online retailers.

Between 2014 and 2017, JD.com’s share of the Chinese e-commerce market grew from 18 percent to 33 percent, according to Analysys International Enfodesk. This was fueled by four factors: First, JD gained new customers as many smaller business-to-consumer marketplaces collapsed. Second, its biggest investor is Tencent, which owns WeChat, China’s most popular messaging app. Tencent’s integration of JD’s marketplace into WeChat significantly strengthened JD’s position against Alibaba. Third, JD attracted partnerships from a growing list of companies that want to counter Alibaba’s growth. Lastly, JD owns and operates its own warehouses and logistics network, while Alibaba mainly relies on third-party merchants and logistics providers. This makes it easier for JD to keep counterfeit products out of its marketplace.

JD.com’s revenue and earnings have been growing robustly, at a double-digit clip, and it’s positioned to benefit from growth in the Chinese economy, as more Chinese join the middle class, as well as from the secular increase in e-commerce sales, as internet and mobile access expands and technology and delivery capabilities improve.

For long-term investors who can handle some risk, JD.com is worth consideration. (The Motley Fool has recommended and owns shares of JD.com.)

Ask the Fool

Q: Are stock buybacks a good thing? – K.G., Adrian, Michigan

A: They can be. A stock buyback is when a company buys back some of its stock, essentially retiring those shares. It can be a great way to reward shareholders, because when there are fewer shares of the company, each is worth more.

Imagine, for example, if a pizza is suddenly cut in six pieces instead of eight – each piece is bigger. Consider this extreme example: If you own 10 of a company’s 100 shares, you own 10 percent. But if it buys back 50 shares, your 10 now make up 20 percent of the company.

Buybacks can destroy value, though, if a company spends that money on overvalued shares. They should only be executed when shares are undervalued (or fairly valued). Otherwise, that money would be better spent, say, paying out a dividend, paying down debt or growing the business.

Q: What are “Spiders”? – J.J., online

A: That’s a nickname for Standard & Poor’s Depositary Receipts (SPDRs), which trade with the ticker symbol SPY.

Much like S&P 500-based index funds, Spiders include ownership stakes in all 500 companies in the index, such as Apple, Boeing, Costco, CVS Health, ExxonMobil, Facebook, Ford, Kroger, McDonald’s, Nike, Pfizer and Visa. Unlike index funds, though, which operate much like traditional mutual funds, Spiders are exchange-traded funds (ETFs), structured more like shares of stock.

While mutual funds sometimes require minimum investments of thousands of dollars, you can buy and sell as little as one Spider share at a time. (Recent price: $274 per share.) Learn more at fool.com/etf/etf.htm and morningstar.com/etfs.html.

Spiders are a simple and handy way to be invested in much of the U.S. stock market.

My dumbest investment

My dumbest investment decision? In June 2010, I sold more than half of my shares of Netflix. The holding had become a three-bagger for me – the value of my investment had increased threefold. That night I kept thinking to myself, “What have I done?! I sold Netflix!” The next day I bought back the same number of shares.

I’ve trimmed my position since, four times, each time because it had grown to make up more than 15 percent of my portfolio. – R.H., online

The Fool responds: Netflix has been hugely profitable for many people. The company had its initial public offering, when it began trading on the open market, 16 years ago, in May 2002. Since then, its shares have risen in value by more than 30,000 percent. (You read that right!) That’s an average annual gain of 44 percent.

It’s easy to see what a great investment Netflix was – in retrospect. Years ago, though, many wondered how well it would compete with video stores, cable companies and other streaming services. The stock has had some big ups and downs, demonstrating the value of being patient and holding on as long as you believe in the company.

It’s smart to trim holdings that grow to dominate your portfolio, because you don’t want your portfolio to implode if they do fall apart. (The Motley Fool has recommended and owns shares of Netflix.)

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