The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Lukewarm IPOs is Good News

01/28/2020

I hate long-term bond funds.  I hate annuities.  And, I really hate IPOs (initial public offerings).

IPOs happen when a private company wants to sell part of its ownership on a public stock exchange, like the NYSE.  (Of course, it begs the question of why would I want to sell part of my company when its value is going up?)

The popular perception of IPOs is that their shares are issued today and double in value tomorrow.  Wrong!

2019 saw a solid IPO market with easy sales of new company stocks.  That is a good sign.  But wait!  Of the issues sold in 2019, they ended the year selling at only 70% of the issue price, meaning most IPO investors lost 30% of their investment by year-end.  This is also a good sign.  Bad for investors but good for the overall market.

The Relative Strength Index (RSI) suggests the stock market is 15% “over-bought”even after the last week or so.  There is froth in the market.  The fact that the IPO market is not too frothy or over-heated is a good sign.  We know consumer spending is solid and highly likely to remain solid regardless of the caronavirius.  Weakness will have to come from government spending (fat chance) or business spending, which must be watched closely.

I’m not losing any sleep these days, except when I think about how much I hate IPOs.

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