Hey guys, how's it going.
It's Andy from Magoo Investing.
Today I'm going to be talking about IPO's and more specifically why I think that you
should kind of avoid them in their infancy.
The reason I'm talking about this is because Lyft has been in the news recently.
I think it went public around 2 weeks ago.
And it was going to go public at $72 and I saw that and was like "72 dollars, I can buy
a couple shares of that.
Put in like 150 - 200 bucks and be ok with that".
And I remember texting my dad and saying I think about buying some shares of Lyft, it's
a company that I care about a little bit, and I'd be ok owning it.
And he said, and really stuck with me, "if you can't get out in the first 30 min to an
hour, you should really avoid being in there."
And so I ended up not buying into it because when it went live it was in the 80 dollar
range and now I believe it's down in the 50's.
So i saved a decent amount of money by not making that trade.
I did some research and now I'm going to tell you why you should avoid IPO's at the very
beginning because I almost made that mistake if I didn't have my dad there.
And I would have made that mistake if it wasn't for him.
So in the past couple months, there's been this race between lyft and uber to see which
one was going to be the first one to go public.
And going public is important because it raises funds.
Kind of similar to amazon, from what I've seen, is that these companies are not very
profitable.
So they've set up their base and now they're going to go public to start raising some more
money.
It seemed like Uber was going to be the first one to go public and then one day it came
out that Lyft was going first so that happened.
Uber is getting close and will probably be there in the next month or so.
But Lyft said they were going to go public at $72 and that doesn't really mean anything.
One of the reasons why I think that you should stay away from IPO's is that the past numbers
and prices are a way to see if you're getting a good deal or not.
72 dollars doesn't mean anything, you have no data to go on to back if that's a good
spot to buy or a bad spot to buy.
Everything that goes into it is hype and I talk a lot about my trading strategy which
is buying after a stock has bad news event or bad earnings because you're getting them
at a great price.
This is the opposite of that because I like buying when everyone else is selling and this
is people being excited about something and the hype pushes things up.
And when hype comes in, you get the guys that are day trading it.
They'll go in, buy the shares, hold them for a couple minutes, and then sell them and the
stock price falls which is exactly what happened.
It started in the 80's and then over the past two weeks it's now down in the 50's.
It's been steadily going down over ever since it went public.
I didn't make that mistake (thank goodness) and I put my money elsewhere.
IPO's are super risky, it's all about hype.
You have these companies that you know and love and you see that they're going public.
Stuff like Snapchat recently which was one of the ones I was paying attention to and
now lyft and eventually when Uber goes public.
People my age see those companies and go "oh I love that company, I'll buy some shares"
and they don't realize that the big investors are going in and are shorting the company
because you have all of these guys that want shares and then they get them, stock price
jumps, and then they sell everything immediately.
There's a lot of volatility in the first couple of weeks.
And I probably wouldn't recommend buying an IPO for probably 6 months.
And the reason for that is that once a stock goes public, a lot of the employees of the
company get shares.
And that's a kind of a thank you for working for them and a reward.
There are rules put in place by the SEC on when you can sell those shares.
Up until that point that you can sell those shares, you're going to have to hold onto
them.
And I believe that the minimum is 90 days.
So 90 days from an IPO they can't do anything about that.
So a lot of the shares that are given out that aren't in the free area that people can
buy are being held in employees and they can't do anything.
Once you hit between 90 days or however long I think it can be up to 2 years, you can sell
those.
A lot of times, people will liquidate those shares to get the cash to move it somewhere
else.
And it's not because they don't believe in their company anymore, it's that they were
just given a lot of money and they want to put it somewhere they feel more comfortable.
Whether that's buying a house, buying something else, buying a different stock.
They're trying to move that out of the IPO that's still pretty volatile.
I think Lyft is a great company, I think Uber is an even better company so I'm going to
be waiting for them personally.
But after what I've learned and seen how the stock's been moving, I probably won't be touching
those until probably the end of this year.
I almost made this mistake and I'm hoping that you will stop and think and don't get
caught in the hype.
You can wait, you can buy the stock a year from now and it'll probably be the same price.
Things are crazy, just take things slow, this is a long game and getting excited about a
company that you enjoy and then making a bad decision.
Then putting yourself at a disadvantage is not worth it.
Felt good to be making a video again, trying to be more active now that I have some more
free time.
Not taking as many classes and I just need to find a job so I can buy more shares of
stocks.
Hopefully you guys enjoyed this video and I will see you guys in the next video.