"But It's Different This Time"
If ever there were famous last words in investing, they’re certainly these four: It’s different this time.
Every single time I hear those words, no matter what order they're in, a shiver creeps down my back. Because every time someone tells me it’s going to be different this time, it turns out just the same way it always has.
Mark Twain is often cited as saying something similar to “history doesn’t repeat itself, but it does rhyme.” Now, there’s no actual proof he ever said or wrote anything like that, but no matter who said it, it’s true — 100% true. And by failing to study the past, we’re doomed to repeat the same mistakes and failures.
It can be said of foreign policy. After most of the world was laid to waste in World War II, governments and leaders around the globe tried not to repeat the mistakes that led to two back-to-back wars to end all wars.
The memory was fresh in their minds. They didn’t rattle their sabers or make threats against other countries like they do today.
Back then, they realized those actions would likely lead to another massive conflict and that massive conflicts aren't good for anyone.
But that’s not what I want to write about today. You’re not reading this for my foreign policy acumen.
Today, I want to talk about a bubble that’s been ballooning since March but isn’t getting any attention in the financial press.
It’s not the tech-stock bubble some of my peers have opined on. And it’s not the sudden flurry of SPAC filings we’ve seen in 2020, although it is related to that.
What I want to talk about is something that hasn’t happened since 1999, right before the tech bubble exploded and nearly killed the internet.
The Only Difference Is the Year
You see, back in 1999, the dot-com bubble was in full growth mode. If you had a dot-com in your name, you were going to make beaucoup bucks if you took your company public.
In that year alone, there were 476 IPOs. In 2000, the year the market peaked and the bubble finally burst, there were 397.
Since then, the average number of companies going public has dropped to around 100 per year, but there have been periods (like in 2008) where only 21 real companies held their IPO.
That's all changed this year. In 2020, there have already been 415! Why so many, you ask?
Well, because the market is willing to pay whatever they ask. And when you can name your own price, that’s the best time to sell something.
Don’t believe me? Take a look at a monthly chart of the markets superimposed over a monthly chart of IPOs this year:
Notice any patterns in that image? Notice that as the markets ramped up over the summer there was a massive push to get private companies trading publicly?
It’s not a coincidence. The insiders saw the mania sweeping the markets this summer and recognized their best opportunity to cash out and leave someone else holding the bag.
And IPOs have swelled back up to dot-com-bubble levels.
Think it’ll be different this time?
Maybe... but Probably Not
So far, it has been a relatively successful year for IPO investors. Of the 400-some IPOs in 2020, only about 25% are currently down. And the average gain across the whole batch is around 30%.
But is that going to last? I just don’t see it. Eventually, investors have to start looking at profits. And most of the companies that have listed this year have none and are a long way from them.
Losses are growing at the majority of newly public companies. Peter Thiel’s Palantir even went as far as to pretty much promise investors that it would likely continue to lose money forever.
So why is Palantir’s stock up 235% since completing its SPAC merger IPO? Honestly, I couldn’t tell you. It makes no sense to me that a company making billions of dollars spying for the U.S. government is incapable of profiting.
And honestly, if you can’t profit as a government contractor, you should just give up. The government pays more for literally everything than the private sector.
Trust me, I know. I’ve approved a purchase order for the proverbial $15,000 claw hammer. It’s one of the reasons I quit working for the military. That was $15,000 of my taxes down the drain on a $10 item.
So, if you can’t make a profit selling stuff to people who regularly pay 150,000% of what something actually costs, you’ve essentially failed as a business.
And the thing is, with Palantir, the insiders and employees know it. They know they have a failed business on their hands. They knew the only way they would ever salvage their private investments and potentially make a little profit was to take the company public.
They could immediately sell 20% of their shares, and after a short lock-up period that will end sometime in January or February (three days after its next earnings call), the other 80% are going to be up for sale.
You can probably guess what I see happening. The insiders who know how bad the company’s chances of success really are will dump those as fast as they can to try to eke out what little profit they can.
And those folks who bought into all the hype and kept buying shares up to the expiration are going to watch any gains evaporate like a teardrop on an Arizona sidewalk.
It’s Never Different This Time
Now, don’t get me wrong; there are some companies listing this year that deserve investor money. And I’m not telling you to never buy into an IPO.
But when you see a pattern forming that looks like something you’ve seen before, you have to at least pay some attention.
Markets are hitting all-time highs. It should be no surprise that these private investors want to cash out while they can get more for their company than ever before.
But the flurry of activity suggests they know that this could be their only shot to stage a hasty exit and get out with something rather than nothing.
I could be wrong. It could be different this time. But in my experience, it rarely is.
And I don’t want you getting caught in some bubble we haven’t named yet when it breaks not too far down the road.
So I wanted to give you a little heads up and paint a picture with data. I really think that chart I shared above says it all…
The more money you’re willing to pay, the more stuff people will be willing to sell you.
It doesn’t mean that stuff is worth what they’re charging for it. Heck, I remember a few years ago when a guy in Australia got 15 minutes of fame for selling FREE coupons on his country’s version of eBay.
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If you’re dumb enough to buy it, someone is shady enough to sell it.
So, as this IPO bubble keeps growing, keep that in mind. Don’t just buy a company because of the hype.
Because it’s probably not any different this time either, and as Ben Franklin may have famously said, “The definition of insanity is doing the same thing over and over and expecting different results.”
There’s no proof he really did say that. It’s also been credited to Albert Einstein, Rita Mae Brown, and good old Mark Twain. But whoever said it was on target.
If you do the same thing over and over and expect it to be different, you might not necessarily be insane, but you’re probably a few sandwiches short of a picnic if you get my drift.
It’ll Be the Same This Time, Too
But if it’s not likely to be different this time, that means there are going to be some companies that succeed.
Amazon went public at the start of the dot-com bubble’s formation. Investors who bought and held through thick and thin are up 163,000%. E*TRADE is another dot-com era company still making investors profits.
And like them, some of the companies going public this year will still be around in 20 years, too, but not all of them by a long shot.
That’s why you need to enlist the services of an expert if you’re going to be investing in initial public stock offerings.
And luckily for you, we’ve got our own resident expert on IPOs right here at Wealth Daily.
Her name is Monica Savaglia, and she’s been helping me research and analyze IPOs ever since we started working together all those years ago.
You’ve probably already read some of her commentaries. She’s been pretty busy this year — 2020 has been like covering four years’ worth of IPOs in just 12 months.
But she’s stuck with it and thanks to her timely alerts and meticulous analysis, her investors have been able to avoid those money pits dragging the average gain down this year.
And they’ve known when to make a move and scoop up shares in an IPO. In fact, she’s so good at this corner of the market that while the overall average gain for 2020 IPOs is a paltry 30%, her investors are averaging 133% gains on their open IPO investments.
And they’ve netted an average gain of about 100% on the IPOs they’ve sold out of this year.
I don’t know about you, but I’d prefer to have an expert like Monica with a track record like that. Or you can take the other approach and just buy them all and hope for the best. It’s your choice: 30% average gains or 100% average gains?
Me? I’ll take the easy double and get on with my life.
Why Not Join the Party?
If you’re thinking the same thing, I have an opportunity for you today. Monica’s given me permission to offer her services to Wealth Daily readers for a serious discount.
This kind of analysis sells for hundreds, even thousands, out on the Street. Institutional investors literally pay hundreds of thousands of dollars a year to get an edge like this.
But we’re not here to help the big institutions or the people who can already afford to pay those exorbitant prices. We’re here to help you.
And charging you a king’s ransom for our advice is not helping.
So Monica agreed to let me offer a full year of her extremely advantageous advice for a fraction of what it’s worth.
Just click here now and you’ll have the chance to join her investment community for less than the cost of a family meal from Uber Eats.
But don’t delay. We were only three days into December when I counted the IPOs. And there were already nine. That’s three a day so far. If that momentum holds, we can look for potentially 84 more before the year’s over.
If you’re hoping to figure out which one is going to make you a profit and which one is going to leave you holding stock worth less than toilet paper, I advise you to act quickly and join the thousands of other investors already profiting from Monica’s advice.
Just click here and learn how you can get started today.
To your wealth,
After graduating Cum Laude in finance and economics, Jason designed and analyzed complex projects for the U.S. Army. He made the jump to the private sector as an investment banking analyst at Morgan Stanley, where he eventually led his own team responsible for billions of dollars in daily trading. Jason left Wall Street to found his own investment office and now shares the strategies he used and the network he built with you. Jason is the founder of Main Street Ventures, a pre-IPO investment newsletter, and co-authors The Wealth Advisory income stock newsletter. He also contributes regularly to Wealth Daily. To learn more about Jason, click here.
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