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Why I never buy an #IPO
$SNOW, $PLTR, $NCNO, $AMWL, $SUMO, $U, $GDRX etc.
A thread.
I wait for at least 2 quarterly results, preferably more, but normally at least 8 or 9 months after the IPO. There are several reasons for that. (1/12)
$SNOW, $PLTR, $NCNO, $AMWL, $SUMO, $U, $GDRX etc.
A thread.
I wait for at least 2 quarterly results, preferably more, but normally at least 8 or 9 months after the IPO. There are several reasons for that. (1/12)
FOMO. A lot of investors don't want to miss the next 'hot' stock but fear of missing out is not the best investing principle. You buy a stock not because the company executes so well or because you are impressed by the conference calls but simply to follow the herd (2/12)
As human beings, we are susceptible to social proof. If so many pundits are upbeat about it, it must be a good investment, right? Wait and you can see in the company's results. You can judge for yourself then instead of blindly believing others. (3/12)
The hype machine: banks underwrite themselves and for their most important clients. If shares jump 100% they pocket the difference. There's also underwriting spreads of, typically, 7% Banks profit in all sort of ways, as you can read here:
http://blogs.reuters.com/felix-salmon/2013/03/11/where-banks-really-make-money-on-ipos/ (4/12)
http://blogs.reuters.com/felix-salmon/2013/03/11/where-banks-really-make-money-on-ipos/ (4/12)
That's why banks will do everything in their power to push everyone in the industry to hype stocks before the IPO.
And you know how it goes in a business where everybody knows everybody: most will simply do what they're expected to do and will contribute to the hype. (5/12)
And you know how it goes in a business where everybody knows everybody: most will simply do what they're expected to do and will contribute to the hype. (5/12)
Very important: I want to see how a company executes under the public eye for at least a few quarters.
Public scrutiny is different than operating as a private company. The expectations come from outside now and missing earnings paints a whole different picture. (6/12 )
Public scrutiny is different than operating as a private company. The expectations come from outside now and missing earnings paints a whole different picture. (6/12 )
The lock-up period: After 6 months (mostly) the lock-up period expires so insiders can sell as many shares as they want. Management and early investors often seek to cash out at least a part of their holdings and that means that millions of shares flood the market. (7/12 )
The lock-up expiration after the #IPO often causes price drops, so there's time to buy between month 6&12. Plenty of examples here. Let's take the best #potentialmultibagger, up 1,100% since I picked it in May 2017, $SHOP. This is the price action in the first 6 months: (8/12 )
And this is $SHOP's price between months 6 & 12 after the IPO. It perfectly follows the pattern of a lot of stocks between months 6 and 12 after IPO. (9/12)
Another example? Let's take another #potentialmultibagger. $LVGO IPO'ed on July 25, 2019, and you'd have a great return if you started investing then, up 224%: (10/12)
