Don’t Fall Into the IPO Frenzy
Many well-known companies, including Levi Strauss, Uber and Lyft, are planning to go public this year. But if you want to add some unicorns to your portfolio, you should slow down for now.
“In today’s market, there is a possibility that buying new public shares could be a losing trade,” Laurie Konish writes for CNBC . This is for various reasons.
One reason for unicorns like Uber and Lyft, which are huge in value and have raised tens of billions of dollars in funding, is that they just won’t make a lot of difference right away if you have n’t already been invested. If you’re trying to contribute when they go public, well, that won’t necessarily be of special value to you.
Another reason to refrain, as noted by CNBC and I mentioned earlier , is that the start is usually shaky:
Think of Facebook’s IPO in May 2012. The company entered the market at a high price, and from the very beginning, investors suffered losses .
It took Facebook stock about a year to return to its original price. Stock gains will be considered successful today – as long as you hold on.
Investors can get scared and back off. Better to wait a little and make sure. As I wrote when Spotify went public :
Sit back and let big investors dictate the market, then buy in small blocks after a few weeks when things settle down. “[Going public] can be quite risky because usually institutions start to pay attention to it,” he says. “Wait a few weeks and then start watching. The first day will be very unstable. “
Until then, do your homework for the companies you are interested in. As I wrote before, think: “How do they make money? What’s his long term plan to keep making money? What alternatives are eating up his market? “
And remember, you can probably access these popular companies by investing in mutual funds . Simply put all your eggs in one basket without risk.