Avoid Buying Those IPOs | Podcast Episode #362

0:07
Hey, I’m Ryan Mallory and this is my Swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex, everchanging world of finance. Learn what it means to trade profitably and consistently managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

0:25
You can succeed at the stock market, and I’m ready to show you how. Hey everybody, this is Ryan Mallory with Swing Trading the Stock Market. And today’s episode we’re going to talk about IPOs. Man, there’s been a lot of hype since Thursday about, well, there was hype beforehand too leading up to the IPO, but this ARM IPO, stock symbol ARM, if you haven’t heard about it, man, I don’t know what to tell you.

0:47
It’s been everywhere. And I’m not going to do an e-mail today. I’m just going to talk about the IPOs. I did a YouTube video on it as well, but I also thought it was probably appropriate for the podcast to do the discussion on whether you should be buying IPOs, especially the first day they come out and then the days that follow, whether or not that’s a good time to be buying them.

1:07
But yeah, there’s a ton of hype with these things. I mean, I can remember all the way back to when Visa came out with its IPO. There was a lot of hype of that, not as much as what you see with the hypes today. I think the GameStop phenomenon, you know, with the Wall Street bets crowd, I think they’ve hyped up these IPOs well beyond sanity.

1:24
I think that a lot of people get way too caught up and trying to get in at the ground level. And I think a lot of it honestly comes from you go back to like high school economics classes and they’re teaching you about the basics of the stock market and about buying and holding. And they said to yourself, and this is personal experience.

1:41
I remember when I was in high school, I think this was my senior year in high school and I remember my civics teacher or my government teacher, I guess is what it was. Her name was Miss Mills, by the way. Miss Mills was phenomenal. She was a great teacher and we even had like a dance for her that we would do behind her back when she wasn’t looking.

1:58
We would call it the Mill Shuffle and yeah, I’m not gonna go down that road, but I never did the Mill Shuffle, but other kids did. And it wasn’t inappropriate or anything, but we were just doing stupid things in high school when she wasn’t looking, she was a little oblivious to our antics.

2:14
But anyways, outside of the Mill Shuffle, outside of high school antics, what she was teaching us was about the stock market at the basic fundamental level, buying and holding. And she was using the example of if you bought Yahoo back in the day when it first came out.

2:30
And I remember this also in college too when you took Macroeconomics 101. They also highlighted the stock market just a little bit, but they would probably use probably something from the dotcom bubble. They might have used Microsoft or something else like of that nature. But I remember the Yahoo Finance one. If you buy that one penny a share when it was trading at a penny, well, nobody knew what Yahoo was when it was trading at a penny a share.

2:51
There’s stocks right now that’ll probably be big one day that nobody knows anything about. It’s not on anybody’s radar. So going back and saying if you bought the stock when it was a penny a share, you would be a billionaire many times over. Really not a fair assessment, but nonetheless, that’s one of the things that gets a lot of people hyped up about these IPOs thinking that they’re getting into the ground level.

3:11
Well, nowadays stock like ARM, it’s being valued at $60 billion. You’re not getting in at the ground level, $60 billion is far from the ground level. I think in those examples where a stock comes in like a couple pennies a share, the stock might be worth few $100,000 or a few $1,000,000 or maybe sometimes it gets up to a, you know, 10 or $20 million.

3:32
But they’re very, very low value companies. And so at that level, nobody’s really using the product. If they were, the valuation would be through the roof already. So at ARM, yes, it’s already established. People know about it. It’s doing work with a lot of different companies, some very well known companies.

3:50
So you’re not getting in at the ground level. You might be getting in on it the first day it’s being publicly traded, but you’re not getting in at the ground level. You’re not getting in at it in its infant stages. I mean, take a look, for instance, at Chickfila, right? Chickfila. Which I don’t know what the heck happened to their sandwiches. By the way, Everybody swears by Chickfila.

4:07
It’s not what it used to be. It’s not that good. Maybe not a popular theory. I’ve grown up in the South my whole life. I know when Chickfila used to taste good, they were good years ago. Not anymore. But if Chickfila, which is a privately held company, if they went public, are you getting at the ground level of Chickfila?

4:23
No. Every one of their franchises is making I think on average somewhere crazy like 7 or $8 million a year. Every one of their franchises, which is like two or three times the amount of like what the average McDonald’s does. So you’re not getting in. If Chickfila went public, you’re not getting in at the ground level.

4:40
The company’s well established. They’re just offering it to the public for the first time. Because right now if I wanted to say, hey, I want to be a owner of Chickfila, I can’t do it. Before this past week, if I wanted to be a owner of ARM, couldn’t do it, can I do it now? Yeah, I can do it now because ARM’s publicly traded.

4:59
So don’t fool yourself into thinking that you’re getting into this company at the ground level. You’re not. And so that’s where I think a lot of the hype comes from, is trying to get in at this ground level. And there’s no point in doing that. In fact, what I’m going to tell you here is that a lot of these companies, when they go public, many of them are kind of at the peak.

5:15
They’re peaking almost. I mean, at least from what we’ve seen them do today. And others, yeah, they end up doing really good long term. But buying them the first day that they’re publicly traded is not the way to go. And that’s where I think a lot of people get themselves into trouble is they rush to put their orders and they want to be trading in that first moments of trading, probably putting market orders in.

5:35
And at that time you’re probably looking at, you know, plus 1% spreads because of the volatility at the open. In fact, what I would say to somebody that’s looking to get into an IPO on the very first day is to not do it. I’ve never done it and I think it’s chasing, it’s FOMO, It’s foolhardy to go chasing after a stock the first day.

5:56
I even think it’s stupid to get into it the first couple of months after it starts trading. You take, like I said, a lot of these stocks over the years. You take something like Visa. Visa, yeah, it’s done incredibly well. It has gone through the roof over the years, but it wasn’t the time to get into the stock right out of the gates.

6:13
It jumped the first three months it started trading and then it went on a horrific sell off going from a high of 22 all the way down to the ten. It dropped 50% from its highs in that first three months of trading. If you look at it from where it opened up at, it opened up at 14.88 and dropped all the way down into the ten.

6:29
So still a 33% decline. That’s significant. I would rather wait for it to start bottoming out and then start getting into the stock. But I don’t have to do it right when it first starts to trade. And even if you’re looking to catch the falling knife or something catching the falling knife well below the where it originally started off, at least you’re getting in at a lower share price.

6:49
I don’t recommend that strategy either, but it’s better to wait for there to be some kind of basing and that was Visa that was back in 2008 when it came out. Back in those days, I think I got in at like $40 after there’s been some splits over the years. I don’t recall how many or what kind of splits there was, but had I held over the last 13 or 14 years, yeah, that stock would have fivefold higher.

7:10
But it was a swing trade at the time. But I always remember that I was like, yeah, I made 10% in a few days and it was great. But that was well after the IPO came out. Then you take a stock like Snap. This stock, I remember a lot of people call me and I can always see if there’s a lot of FOMO in a IPO based on how many texts and emails that I get from friends and family.

7:29
Let me tell you Snap, I got a lot of them. A lot of people were wanting to jump in on this stock and they did and what a bad decision that was. It goes from it didn’t even have an initial rally. This stock back in 2017 went from $24.00 down to 4 bucks a share. That’s an 84% sell off from where it opened up at and even worse if you jumped in at not at the open, but where it rallied in the initial couple of days to where it finally bottomed out at.

7:56
And it’s only trading at $9 a share still, so it still hasn’t recovered off of that initial IPO price. You take Etsy back in 2015, $31.00 a share it opened up at and then it goes all the way down to seven. It lost 78%. And it’s not just the stocks from 2008 or 2015 or 2017.

8:16
You take something like Squarespace that just came out in 2021, goes from $48 a share down to $14.43. 70% decline. Meta. Remember that one? Yeah, Meta was crazy popular and it had a horrible, horrific start to its IPO coming out at $42.00 a share, dropping all the way down to the 17.50s.

8:37
You could have had Facebook in the seventeens, that was a 59% drop. Now granted, Facebook has done phenomenal. It has gone as high as back in 2022 it was in the upper three hundreds. Now it’s trading at about 300 a share. Incredible journey. You would have made a lot of money whether or not you bought it at 42 or 17, but can you imagine the difference in your portfolio?

8:57
You’re getting more than twice the amount of shares at 17 than you would have by getting in on the first day of trading at the opening price at 42, more than double the shares, which means more than double the profit. But I remember Meta too. Everybody had to get into Meta, man.

9:12
That was the big one and it turned out to be a big stock. It’s one of the biggest companies out there now and you definitely weren’t getting in at the ground level by getting into. I mean this was also a well established company back in 2013.

9:31
swingtradingthestockmarket.com doesn’t have its own IPO. This is just my little thing that goes along with this podcast here. swingtradingthestockmarket.com is going to give you all of my stock market research each and every day. That’s going to include videos of different trade ideas that I’m following. Also, my bearish and bullish weekly master watch list updates, plus the list of stocks that I’m following each day from that list.

9:52
And you’re going to get updates on all the big tech stocks and video updates on the overall markets each week. So a huge value, incredible value, and it’s worth it and your support into this podcast, so I can keep doing these podcast episodes with you guys. So check that out. swingtradingthestockmarket.com. So we’ve talked about Meta, we’ve talked about Visa, we’ve talked about Snap, talked about do we talk about Etsy?

10:07
Yeah, we talked about Etsy. Squarespace talked about that one. Roblox, this was a big one because everybody, this is where the kids got really interested. Roblox people were like, yeah, I need some of this action. I need my dad to go lend me a couple Hundo’s to be able to get into this trade and initially it didn’t do too bad for the first 9:00 or so months.

10:28
It did go higher. It went as high as 142, started off at 64.50 so it more than doubled and then 2022 hit and it completely fell apart and it’s essentially trading pretty close to its all time lows. Right now it is not looking good at all.

10:43
It looks unhealthy, looks sick and you can say, well Ryan, you could have gone in at 64 if you would have bought that initial pop and rode it all the way up to 140. That is very true. But how many people would have done that? All that would have done is validated everybody’s reasoning for getting in on day one.

11:00
And like, no, it’s not stopping at 100. And you guys remember what we were dealing with at the time when RBLX in early 2022 was popping up like that like crazy, going to the moon. We were dealing with the Wall Street Bets movement where people thought everything was going to go higher. If it’s being shorted, it’s going to go to the moon.

11:16
It doesn’t matter. I mean, we were dealing with Hertz, we were dealing with GameStop, we’re dealing with AMC. People thought everything that they knew and understood should go to the moon and clearly it didn’t. So RBLX, it did hit a price at one point of 142 ish, actually it was 141.60 to be exact.

11:34
And then it came crashing down, down to 21.65. So you go from 64.50 where it initially debuted down to 21.65 and it’s only trading at 27.91 today, but from 21.65 that’s a 66% decline. 66%. Spotify.

11:50
And I actually like the stock a lot, I do like it. I actually did really good on Friday where the market sold off quite a bit, but it held up pretty well. 2018, it debuted at 165.90. Sound like Casey Kasem talking about the top 40s like. And let’s go back to 2018 when Spotify debuted at 165.90.

12:10
No seriously though, it dropped down to 103. Not as bad as like what we saw out of Squarespace or Snap, but it still dropped 38%. Now some of you guys may be saying, Ryan, that’s not the case with all the stocks. No, I mean you got Pinterest. They’re not an exception to the rule.

12:26
Initially they came out at 23.75, popped for about four months or so and then went all the way down to $10.10. What kind of decline is that? It’s more than a 50% decline. And then it did go on to this crazy run higher, and at this point it really doesn’t matter.

12:43
But the point’s been proven. Getting in right out of the gate, you usually lose money. And so even if it does pop, more than likely you’re not going to use that pop to get out of the stock because the reason why you’re getting into it is because you want to benefit from it long term.

12:59
So if it goes up to 100%, there’s a good chance you’re still not getting out. That’s why so many people lost money on GameStop. They were probably up 300% at some points, but they believed in a narrative that was never a real narrative to be achieved. So Pinterest actually did go as high as 89.90 from where it debuted at in the 20s, but then it crashed all the way down into the teens.

13:19
It went all the way back down to like 16.14 this year. And right now it’s trading at 25. So yeah, you actually might be up a little bit, but man, what a circus show that you had to endure if you bought it on the opening day and you’re up like a buck and a half, it’s nothing great. So then you got Airbnb and this.

13:36
Some people will point to this as the exception to the rule, but eventually, I mean for the first year, year and a half or so, it traded sideways. It didn’t really do too much. It did jump from where it opened up at 146, went as high as 219.94.

13:52
That was within the first three months of trading and then it fell back and then just really fell apart going all the way back down to $81.00. So again 146 down to $81.00. You could have had an entry price long term at 81. Now it’s trading at 142, which is essentially just a shade below where it IPO’d at.

14:08
So if you bought it on opening day at the open and you were able to get a fill at the opening price, you’re still down on the trade. And then you had Peloton. Peloton went crazy and they probably were the beneficiaries of some of the best well timed IPO ever.

14:23
I mean, right before the 2020 shutdown they started off at like $27.00 a share and it goes up to over $170. Never really had a pullback at all. I mean once the economy shut down, guys, 2020 was just a freaking money printer for Peloton going up to 170, but guess where it’s at now, $5 five dollars.

14:45
I’m pretty sure people are practically giving them things away now, but the point being, yeah, Peloton might be the one of the few exceptions out there where okay, it made sense to buy Peloton at the open. But for all the other ones that I gave you, oh oh, I didn’t even talk about my favorite.

15:01
My favorite is Rivian. Rivian 2021 debuted at 106 and this was the one that was supposed to be okay. If you missed out on Tesla, don’t worry, Rivian has got your back. This one is the one that’s going straight to the moon. It never popped. Hardly.

15:16
You had that initial pop higher. Where it goes from 106 all the way up to like somewhere close to 180. And it’s trading at $24.00 now. So debuted at 106, trading at $24.00, it went as low as 11.68. It lost over 90% of its value from its highs and from its IPO price, I think it was like 89%.

15:36
So you’re talking about a stock that just got absolutely decimated. But how many people? And I know a lot of people that got into it because I keep getting calls. I was like, Ryan, what do I do about this Rivian man? I got into this thing and it is just butchering me up.

15:56
I know a person who knows the person that knows the guy at Rivian that thinks that it’s a cool stock man. But I really do get those kinds of phone calls and they’re down 75% on it. I don’t know what to tell you when it gets down that low. I don’t know what you do with the stock when you lose that much money on it, but Rivian’s probably the golden child of why you don’t buy IPOs.

16:14
So you got ARM and everybody saw if you missed out on NVIDIA, ARM is the next great thing. Okay. Maybe it is, I don’t know. But I’m going to take the chance, me personally, that it’s not going to be the next NVIDIA within the first 4 to 12 months that it is publicly traded.

16:30
Just won’t. Don’t think it’s worth it. So definitely not worth the chance. I don’t need a stock like Rivian on my hands where I’m down 90%. No, rather just hold off on that one. So the point of all this, careful the IPOs. Don’t buy the hype. Don’t buy the FOMO. Don’t get caught up in it. Be careful, give it some time, wait for it to start.

16:48
The base. Even the really good ones, the companies that turn out to be really good. I’m not talking about Peloton or Rivian, I’m talking about Visa and Meta. Those took time. They dropped. Maybe not for a very long time, but I mean take Meta. You could have gone in at $17.00 a share just by waiting instead of 42.

17:06
And there’s a good chance that if you got in at 42 and it goes down to 17, you’re going to be shaken out of that trade because you’re down more than 50% now and you’re like, I can’t take any more losses. But if you got in at 17 or $18.00 you won’t be saying that same thing. So it’s important to give these IPOs some time, and if it does go up, doesn’t mean that you still can’t get into it at a later time.

17:25
It’s perfectly reasonable to get in at a later time if it’s the right setup, so keep that in mind. If you enjoy this podcast episode and encourage you to leave me a 5 star review on whatever platform you’re listening to this on, it means a lot to me when you guys can do that. It really, really does. Also make sure to check out Swing trade in the-stockmarket.com and send me your questions ryan@shareplanner.com.

17:45
I read them. I would say at least 90% of all the emails I get I make a podcast episode on and if I didn’t make one out of yours and if it’s not about taxes and accounting, then send it back to me again and I’ll try to make an episode out of it. I don’t ever do the taxes and accounting, I just don’t know enough about it.

18:03
That’s why I have an accountant because I don’t know enough to do it myself. So any case, thank you guys and goblin, thanks for listening to my podcast Swing Trading the Stock Market. I’d like to encourage you to join me in the SharePlanner Trading Block where I navigate the stock market each day with traders from around the world.

18:21
With your membership, you will get a seven day trial and access to my trading room including alerts via text, e-mail and WhatsApp. So go ahead, sign up by going to shareplanner.com/tradingblock that’s www.shareplanner.com/trading-block and follow me on SharePlanner’s Twitter, Instagram and Facebook where I provide unique market and trading information every day.

18:42
If you have any questions, please feel free to e-mail me at ryan@shareplanner.com. All the best to you and I look forward to trading with you soon.