We don't stray too much off topic into the realm of the IPO universe too often. But unless you have been living under a rock, you are aware of the noise surrounding names like Beyond Meat (BYND) , Uber (UBER) , Lyft (LYFT) , Pinterest (PINS) , and Zoom (ZM) (to name a few). As we found out quickly, none of these names were able to live up to the hype. Oh, we did see Beyond Meat make a stellar price move to the $200 level, but it has come crashing down to earth in a hurry.
The IPO market is difficult to understand at times. It becomes a popularity contest with interested parties willing to take smart risk to bring companies public. If you're a long term holder of stocks, you can pick through the names and apply some fundamental rule of valuation - and then decide. However, most of these names are smoke and mirrors, with the elusive profit objective often years away.
So what is it about an IPO that captures the delight of the public? The hype from promotion is constant and deafening. The process of the IPO is reviewed over and over again to a public who is probably dumbed down to the process. The appeal is to find the next 'big one', the next Google (Alphabet (GOOGL) ) or Facebook (FB) , to hold onto it until they become immensely profitable and then ride into the sunset.
I dabbled a few times in the IPO arena back in the late 90's; it went well until the lights went out. I asked my broker for a small allocation of InfoSpace, an up and coming wireless name back in 1997. I was allotted 100 shares at the IPO price of 15 bucks. I would end up holding these shares for nearly 2 1/2 years, where I ended up selling 1600 shares at a price of 150 bucks. No, I did not buy any more shares, the stock went up and split four times during that time period. That was an amazing return of 16,000%.
Everyone was doing it. Theglobe.com holds the record for biggest first day gain ever, over 1000% on the first day. Those numbers get everyone excited, it could be them! If you're looking for it though, it doesn't happen too often.
Those are not all that common, and back in the Dotcom days there was money flowing after IPO's like it was coming fast out of a faucet. Nobody cared back then about profits for the company, just making money buying/holding the stock. That is not sound advice though, as we all learned that lesson painfully in 2000/01. The IPO market dried up like the Sahara Desert.
So how is this IPO time going to work? With more investors/traders these days with access to more data/information it may end a bit differently, only with fewer hurt in the process. But as long as people are greedy, there will be speculators coming at the IPO market. As we have seen things slow down a bit, the current slate of names will have to prove themselves worthy of a valuation, or suffer the fate of the dotcoms or some of those who followed - like GoPro (GPRO) and Fitbit (FIT) , names that have been tossed to the side like roadkill and barely heard from ever again.
(Alphabet and Facebook are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells GOOGL or FB? Learn more now.)
