The Problem with IPOs

Have you ever been on the phone with your broker or sat patiently with your online trading account opened just waiting to pull the trigger on an IPO?

The lure of IPOs has long held a grip on the investing public.

​​With anticipation, we watched the news and waited for the latest and greatest IPO or announcement of one coming down the pipe – all hoping to cash in on the next Facebook or Amazon.

In 2019, those who flocked to IPOs were often left disappointed. The list of high-profile IPO flops in 2019 is a who’s who of the next big thing – Uber, Lyft, WeWork, Endeavor, and Peloton.

IPOs are merely a symptom of “shiny object syndrome” – the desire to chase the new big thing – and its close cousin “the fear of missing out syndrome.”

The shiny object syndrome never satisfies.

It’s a short-term, speculative approach to investing that is typical of most investors’ approach – everyone is looking to hit the lottery.

Most retail investors don’t make money in the stock market. According to robeco.com, only 4% of all US stocks were responsible for all the wealth creation on the US stock market over the 1926-2016 period. In other words, over the years, there have been many more losers than winners on the stock market. Those aren’t high odds.

Tired of losing, maybe we’re wising up. Have we outgrown our interest in speculating and now looking to invest smarter? Probably so.

Maybe you’re one of those investors fleeing the stock market, looking for certainty and consistency. Perhaps you’re looking to invest smarter due to your impending retirement, college tuition for the kids, or just plain tired of losing money instead of making money.

For many of the investors who come to us, it’s all about investing for income with certainty.

In contrast to the Wall Street lottery, it’s hard to ignore a steadfast investment like commercial real estate. History has proven that CRE has been a consistent source of inflation and recession-insulated cash flow that appreciates over time, backed by hard assets.

The problem with most IPO companies is that most don’t have an established history of consistent revenue – let alone profitability.

Investors who buy into IPOs are banking on selling it to the bigger fool down the road. But as 2019 proved, the biggest fool seems to be the investors who buy on the first day.

Unlike IPO companies, commercial real estate has a proven and established history of profitability – providing the highest risk-adjusted returns of any investment asset class.

Here at TruePoint Capital, we apply fundamental investing practices to avoid getting blinded by the latest exciting news or shiny new investment.

We don’t speculate. We rely on solid, reliable metrics because our loyalty is to our investors, and our objective is to meet the goals of our investors – by providing income, growth, capital preservation, and a defined exit.

We also seek out investment segments that continue to pay during downturns. It has served us well in the past, and we are confident in our strategies and processes going forward.

Kyle

About the author

Kyle Jones is a co-founder and Key Principal of TruePoint Capital, LLC. Kyle is responsible for the company’s strategic planning, investment decisions, asset management, and overseeing all aspects of the company’s financial activities, operations, and investor relations.

Kyle obtained a Bachelor of Science degree from Texas State University – San Marcos, where he also played Division 1 Baseball.