Buy The IPO Or Just Say 'No'?
/Hi everyone,
The ride-sharing service provider, Lyft, went public on Friday. This means you can buy shares of the company if you want to own an equity stake. Even if you exclusively use Uber, you have likely heard of Lyft as it is the second-biggest player in the industry behind Uber. The two companies have combined to render the yellow cab industry obsolete.
Which leads me to the question you may be asking…
Should I buy shares of Lyft?
My answer ranges between “no'“ and “I have no idea”. My rationale for saying no is based on the fact that there is no price history (unless you consider 1 day to be enough). For how we analyze stocks and funds we need to be able to assess some amount of price history — ideally a minimum of a few years.
Let’s set aside this rationale, because there are other ways to evaluate an investment and you may want to buy it regardless. An alternative rationale is to buy because you feel positive about the business fundamentals. On that basis, I really have no idea whether Lyft is a good investment or not.
And odds are, neither do you.
The reality is, most of the time someone wants to buy into a company that is going public, it is due to the sex appeal of, well…. simply the fact that the company is going public. The more you hear about it in the media, the more intrigued you become. This can lead to a fear-of-missing-out. You feel so compelled to buy it because, otherwise, you might miss out on owning a piece of the next Google.
Thing is, no matter how you end up at the point of buying a newly public stock, you are just guessing. If you disagree, then let me ask you:
Do you understand the company’s financials? More importantly, do you even know what to look at and what matters?
Do you know the company’s risks that could hurt growth and the future share price?
Do you know the company’s opportunities that could boost growth and the future share price?
Do you understand the company’s market share within its industry?
What is the future outlook for the industry as a whole?
And I have not gotten to my most important point, which is that if you plan to “get in on the IPO”, you actually are not. Unless you are able to obtain shares in the primary offering (highly unlikely) you are simply buying shares once they hit the secondary market. Meaning, once those initial owners — the ones who actually did get in on the IPO — turn around and sell those shares to you and the masses in the secondary market.
To be clear, you are buying through the secondary market when you log in to your account at TD Ameritrade, Fidelity, Schwab, etc. to buy shares. Even if you had bought first thing on Friday when it went public you did NOT get in on the IPO. I highlight this because you are likely going to pay significantly more per-share when you buy on the secondary market than you would if you were actually buying through the IPO.
If you are ever interested in buying shares on the secondary market in a newly public company like Lyft, let me know. As mentioned, we rarely look to buy companies that are going public, but we are happy to discuss.
In The Market...
The S&P 500 gained +1.2% last week. Let's look under the hood:
(price data via stockcharts.com)
A nice bounce-back week for stocks, which had tumbled to end the prior week. The S&P index gained +1.8% in March, which marks the 3rd-straight monthly gain to start the year. As far as last week is concerned, we wanted to see the S&P finish above 2,825, which was the closing value/high from two weeks ago. It did, ending the week at 2,834.
Home values slide yet again: Home prices fell -0.2% in January. Seattle homes declined for the 7th-straight month, down -0.3%. Year-over-year, home prices remain roughly +4.0% higher nationwide. Most major cities hover around that mark, with only Las Vegas still experiencing double-digit annual growth (up +10.5%). We have yet to see a city turn negative on an annual basis, although San Diego is close (up just +1.3% in the past year).
The leveling-out of home prices that I anticipated 18 months or so ago has reached its full extent of what I expected. It will be interesting to see if the Spring season boosts demand, and subsequently prices, or if prices will fade further. My sense is that we will see a modest uptick in the coming months.
Here is a complete city-by-city look of the Case-Shiller housing data:
Portfolio-wise we made some moves among portfolios that own individual stocks, but did not make any major allocation changes regarding the diversified funds we own.
In Our Portfolios...
What's New With Us?
We celebrated our daughter’s 2nd birthday on Sunday. Of course we delayed her opening presents until after the Duke-Michigan State game had ended. Priorities… (kidding). We took her to the zoo on Saturday as well, which was a lot of fun.
Have a great week!
Brian E Betz, CFP®
Principal