BABA Investors Should Consider Cutting Off the Weight and Selling

Billionaire Jack Ma's Alibaba Group (NYSE:BABA) isn't immune to the far-reaching implications of Chinese regulators, as we saw when China's State Administration of Market Regulations fined the company $2.8 billion over antitrust issues. Many investors fear what could happen to the e-commerce tech giant if its home country puts a cap on the tech sector as a whole.

Does that mean you should sell BABA stock now? "Even when you think China risk is priced, it can get worse," a Goldman Sachs analyst wrote, so maybe.

Alibaba stock is coming off of all-time highs and the trajectory is rapid. Following a peak of $307.31 per share in October 2020, the shares have lost 41.24 percent of value.

Much of that loss started in February and the rate of sell-offs continues to increase. Adjacent public companies in the Chinese tech sector are bearing the brunt of their nation's regulatory haste.

Out of fear that China's tech companies are getting too big, too quickly, and that Americans are reaping the rewards through capital gains, the government has made marked strides in practically shuttering industries—especially tech stocks that are publicly listed in the U.S.

Alibaba is one of the companies that's seeing a stock market sell-off due to the overarching fears investors have about what the Chinese government will do next.

Ma's company has a history of fines from the Chinese government, and Ma experienced an IPO shutdown for his fintech company Ant Financial. BABA stock responded poorly then, and BABA stock is responding poorly now.

Even with a slightly longer-term horizon, your BABA holdings could be weighing your portfolio down. Look at your positions from a holistic perspective and use your individual stocks as a way to hedge against concentrated volatility.

Cutting off losses is a hard pill to swallow sometimes, especially for BABA investors who bought into their position around October 2020 when Alibaba shares were at an all-time high. If your losses are significant but your position isn't oversized, you might want to add the position to your long-term holdings list and keep an eye on upcoming moves. Just be aware that this is a risk, and regulatory shifts from the Chinese government tend to come hard and fast.

If you're doing a lot of short-term investing and subsequently racking up short-term capital gains, you might benefit from some tax-loss harvesting on this investment. You can claim up to $3,000 of capital losses on your individual taxes each year, but it's important to weigh the potential gains and losses of doing this versus holding out long-term hope for BABA stock.

If your portfolio is in the green from a broad lens, perhaps it's time to reconfigure your positions and break off the dead weight. No offense to a company with a $490.41 billion market cap, but there are safer investments to be had in a similar space (like U.S.-based blue chip company Amazon, for example).