‘I’m standing alone / You’re weighing the gold / I’m watching you sinking / Fool’s gold’ – lyrics excerpt from ‘Fool’s Gold’ by The Stone Roses
I am pretty sure that Manchester’s finest band were not referring in any way to the financial markets with their legendary 1989 song but it seems the perfect backdrop for the last week.
Now from the outset I want to make this clear that this has nothing to do with gold which remains – in my view – a great mixer investment for your core holdings of a diversified range of equities in today’s world. No, the fool’s gold I am referring to is that old chestnut of initial public offerings (IPO).
I watched the Snap IPO on Thursday with a mixture of amusement, bemusement and complete shock. First, huge congratulations to all involved on the management and development teams – many of whom are now significantly richer (at least on paper) than they were a day or two ago. Of course being somewhat older than their target audience I don’t really get the attractions of their main product, but I do see why there is the hype as a route and a mechanism to ultimately the burgeoning advertising wallets of younger people. I also see early growth statistics that bear some resemblance to Facebook’s. Put the two together and the maturing advertising-revenue led model of Mr Zuckerberg’s concern – which has performed very well for patient multi-year investors since floatation – could provide a precedent model. My personal view is that Facebook has a bigger inherent reach – I cannot quite see Grannies around the world reaching to download Snapchat – but the beauty of the stock market is that we will find out the reality over time.
Initial public offerings often make the news when markets are rampant because faith in the future by definition is more excitable. The juxtaposition of kicking around all-time highs in the US markets with the aforementioned well-received Snap IPO is therefore not surprising. And they will follow until the market can take no more a characteristic which is why on average it is more prudent to wait and see how a company does after a results disclosure or three after listing.
Investing in IPOs was also in the news this week following some observations by the UK’s Financial Conduct Authority (FCA) who are concerned that information on too many new stock market listings are tightly held primarily by the investment bank(s) who are in charge of floating the IPO-ing company’s shares. It is not difficult to see why so-called ‘connected research’ could prove problematic, first in terms of availability and second in terms of quality. So chat from the FCA about liberalising this and hence forcing companies who want to list to share more information with independent experts who can properly scrutinise their plans sounds a good idea. In theory it should also help non-institutional investors to access such IPOs too.
And this latter point is a good thing. Too much of the investing world occurs either behind closed doors or is couched in financial terminology that seeks to bamboozle rather more than it enlightens. More and simpler disclosures to a wider audience on IPOs is a good thing as the oxygen of publicity can be a very cruel and enlightening mistress. The poor batting average I see for IPOs even taking into account the day one success for Snap could be materially improved.
I would actually go further than this though and deepen the FCA’s proposals and embrace technology to make this more of a reality. Why should a company looking to do an IPO not have an informational presentation webinar with anyone who wants to dial in (and suitably tick all the boxes that they understand the risks etc.)? As an institutional investor I have attended plenty of ‘rubber chicken’ roadshow lunches or hosted a company undertaking an IPO in a meeting room, or received thick prospectuses replete with company disclosures and floatation information. We should take the best elements of the popular capitalism floats of the 1980s and 1990s (or even the Royal Mail more recently) and attach them to a modern and cool technological information dissemination distribution capability. Now that would be popular capitalism 2017 style.
IPO information on your Snapchat feed? Well I guess there’s a circular attractiveness to this…
Chris Bailey has over 20 years of investment industry experience at long-only and long-short institutions as a global multi-asset fund manager, strategist/macro thinker and, in the earlier part of his career, as a securities and fund analyst.
In 2013 he founded Financial Orbit focusing on daily macroeconomic comment and securities analysis. In December 2016 his Twitter account (@financial_orbit) was named as one of the ’50 accounts investors should follow in 2017’.
The content on this page does not constitute financial advice and is provided for general information purposes only. Nothing on this page should be regarded as an offer to conduct investment business or to buy/sell any investment.