Hope you are doing well.
As the subject line suggests, today I am going to discuss about IPO investing.
Well, it’s a season of IPOs and I must say crazily valued ones, but then who cares about valuations or doing some deep research on stocks these days.
Not many, but we do.
In fact, I have never really understood the craze for IPO investing. Why?
- I don’t know the management well – In case of listed companies, we have a track record and past history of management and their actions. Here, we don’t know much; we don’t know how the promoters will treat minority shareholders, how well will they handle a downturn or a crisis…just not enough track record or history to bank upon.
- Insane valuations – Valuations have become a joke in the world of IPOs. Both the promoters and the investment bankers have become extremely greedy. But then, they are not entirely to be blamed when investors themselves have a herd mentality and lining up in hordes without giving a second thought about what they are getting in return for what they are paying.
- Low/zero allotment – Even if there’s a good company at decent valuations, who is actually getting a decent allotment. Even if you get 1 lot allotted and the stock goes up 50-100%, the overall impact on the portfolio is almost negligible. Yes, it may give you a talking about in a social gathering as to how you made 50-100% gain in a matter of few days, but for most of the people, it doesn’t move the needle in terms of net worth.
On the other hand, there are 100s of listed companies with 10-15-20 years track record offering great growth opportunities and at reasonable valuations. Most importantly, we can buy decent quantities of such stocks which would make a meaningful impact on our portfolios and net worth than praying for allotment of 1 small lot of stocks.
As Mohnish Pabrai of Pabrai Funds recently said, ‘Do not buy what’s being sold, buy what is being discarded’.
Happy investing and hope you have a great weekend.