030: IPOs – Road to Riches or Path to Poverty?

Fear of Missing Out — better known as FOMO these days — is a strong human emotion, to begin with, and when money is involved, its already considerable influence becomes even more powerful. You can make a pretty strong case that nothing taps into this alchemy of money-fueled emotion quite like IPOs do. In the financial and mainstream media alike, it seems that we’re constantly regaled with stories of people “on the inside” who have amassed fortunes simply by “getting in on the ground floor” of an IPO opportunity that’s enjoyed a meteoric rise — think Google, Amazon, Facebook, Tesla, and many others. This may have caused you to feel left out, wondering, “Why can’t this happen to me?”

In reality, IPOs are very far from the “can’t miss” wealth vehicles they’re often made out to be. For every winner the media can point to, there are also quite a number of IPOs that not only fall rapidly from their initial IPO valuations, but also never recover. In fact, plenty of them fail outright. Further, the idea that the general public can somehow buy into an IPO at its initial offering price is just a fable. Those who actually get a crack at the initial IPO offering are the most prominent clients – typically large financial institutions – of the investment banks entrusted with handling IPOs like Goldman Sachs. While the Average Joe on the other hand, only gets dibs once they’re actively trading, at which point hordes of investors are often feverishly trying to add them to their own portfolios. 

Where FOMO is concerned, giving in to emotion is often a prescription for financial loss for investing outsiders. In most cases, the price per share of IPOs drops below their initial offering price within the first six months — often substantially. And yet it’s hard to get those IPO success stories out of our heads. We’d sure hate to regret our lack of action if the company in question becomes a successful household name without us being on board. Surely there must be a roadmap to IPO success, right?

If you’re wondering this very thing, we’ve got you covered. Listen in to the newest episode of A Place of Possibility™, as Richard and Angela offer you an honest, clear-eyed view of these captivating and largely misunderstood investments. They’ll clear up some of the misconceptions that surround IPOs and explain why they’re rarely — if ever — the financial panacea they’re often portrayed to be.

We’ll be talking about:

• The motivations that lead a company to offer its stock to the public in the first place
• Why our current economic conditions make the IPO route even more attractive for companies seeking additional capital
• Who actually sets the initial share price of an IPO, and why a true (Dutch) auction — where actual buyers of the stock set the price — isn’t even considered an option anymore
• The forces that conspire to make things difficult for independent investors seeking to mirror the IPO moves of well-connected financial institutions

And more!

We look forward to giving you an honest, unbiased perspective on IPOs to help you become a more prudent and well-informed investor. We hope you’ll pass this episode along to your family, friends, and anyone else who you think might benefit from it.