Claire Corlett

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Ken Fisher’s Take on Initial Public Offerings (IPO) | Fisher Investments [2019]

Ken Fisher’s Take on Initial Public Offerings (IPO) | Fisher Investments [2019]


So, a lot of people like IPOs. A lot of people like going to Vegas. A lot of people like a lot of stuff. But 32 years ago, in my book,
“The Wall Street Waltz”, I coined a phrase that
“IPO means it’s probably over-priced.” Since then there have been
a lot of studies done that show that the history of IPOs is that when we look out at
one and five year returns afterwards, and in fact, ten year returns afterwards,
they’re terrible. The fact is, initial public offerings
have always been priced by the company issuing the securities and the investment bank,
or banks doing it, to be at pricing favorable to the company, which means unfavorable to the buyer
or they wouldn’t take them public. If the market doesn’t allow you
to take them public at prices favorable
to the selling company that’s issuing the securities
and getting the money there from as favorable financing terms,
they’re not going to do it. Now, think of that another way because you can also use this
in a positive sense. When there’s a relatively small quantity
of IPOs, it tells you that the market’s
probably not over-priced. Because when the market
actually gets over-priced, you get a flood of IPOs. And not only do you worry about
the first ones, a little, what you really want to
worry about is later when you get more
and lower quality ones. Normally, the first ones
are relatively high quality companies that haven’t gone public
for a long time because it was an unfavorable
financial world to do that in at terms that would be favorable
to the issuer. Who are then relatively high quality so they’re able
to get those offerings off… in a credible world at a credible pricing. Later, you get more and more garbage,
and more and more garbage, and more and more garbage. And you get to development stage companies floating IPOs going public. And the lower the quality
the more you worry that the market’s actually overpriced. So, when you think about them individually
as a buyer, they’re bad for you. When you think about them
as a macro sentiment measure they’re actually useful for determining
when the market itself is overpriced. But the fundamental feature
is to remember that IPO, the phrase that’s used for
initial public offering, really means it’s probably overpriced.

2 comments on “Ken Fisher’s Take on Initial Public Offerings (IPO) | Fisher Investments [2019]

  1. He's right. Period. Look at Snap, Lyft, and soon Uber? Burning cash does not mean making a profit. Better to wait for the market to determine the share price instead of the company/financiers…

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