The initial public offering (IPO) market has struggled over the last 18 months, reports Mike Larson, who offers a strategy to protect your assets.
Overhyped, overvalued and overloaded with losses.
That describes most of the high-risk initial public offerings (IPOs) Wall Street has been dumping on the public markets since spring. And that’s precisely why I warned investors many times since early 2018 to avoid that junk like the plague.
Now, many of those IPOs are imploding. The downside is particularly brutal among smaller second- and third-tier companies. But even many of the majors are sliding down a slippery slope.
That makes it more important than ever before to safeguard your capital so it doesn’t get vaporized, too!
Let’s start with the ride-sharing company Uber (UBER), the one that hasn’t managed to generate any operating profits during the longest U.S. economic expansion in history.
Its shares have lost 24% in just the last three months. Competitor Lyft (LYFT) is falling, too. It has lost 22%, and just hit a post-IPO low this week.
Zoom Video Communications (ZM)? It fell off the table in the past few days, bringing its three-month losses to around 23%. For its part, Farfetch Ltd. (FTCH) collapsed in August. The formerly “red hot” IPO is now down 53% in only three months.
Meanwhile, RealReal Inc. (REAL) has managed to shed more than 14% in only a month, while Slack Technologies (WORK) has tanked 20%. CrowdStrike Holdings (CRWD) just joined the loser’s club, too. It’s off 28% in that short time frame.
What about some of the specific companies I cited back in 2018 as examples of all that was wrong with the current crop of IPOs? Well, HyreCar (HYRE) has plunged 35% in the last three months, while Domo Inc. (DOMO) has tanked 50%.
IQIYI Inc. (IQ) is roughly unchanged in that time frame, but down 32% in the past year. And Uxin Ltd. (UXIN) has performed even worse, losing 43% of its value in the last 12 months.
Yes, there are a handful of exceptions. But by and large, buying into high-risk, money-losing IPOs after they debut has resulted in disastrous outcomes for investors. Meanwhile, investors who wisely chose to focus on “Safe Money” sectors, stocks, and asset classes like gold have done very well for themselves.
My advice?
If you own companies that are bottomless black holes of losses, that require constant infusions of private and public capital to keep the doors open, that haven’t managed to prove they have real business models in years, and that look like this cycle’s version of the dot-com dreck that came public in the late 1990s; sell and don’t look back.
They’re the wrong stocks trading at the wrong prices at the wrong point in the economic and credit cycle. You’re much better off continuing to play defense in your portfolio, as I’ve been recommending since early 2018. That means focusing on stocks with dividend protection and recession-resistant business models, carrying higher levels of cash, increasing your allocation to “chaos insurance” investments like gold, and otherwise taking fewer risks.
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