An Investing “Event” Can Be Risky

Andy Martin, the author of Dollarlogic, posted an interesting chart from the Wall Street Journal on Twitter recently. It makes the point that no non-professional investor would have accepted even five years ago. Being offered stock in an Initial Public Offering (IPO) is no longer a guarantee of fast wealth.

It appears that over the last two years winning with an IPO was a bet where the odds were 6 to 1 against. There is no gamble you can take in a casino that comes close to odds that adverse. Realistically, you should short every IPO that comes on the scene.

Will the drought continue?

That’s hard to say. Sure, the Covid thing seems to be passing, but will old ways return? I would not want to bet on that. People learn that losing events can happen and they don’t forget. The steely-eyed skeptic is easier to find today than is the dreamer who sees owning  2010 Tesla at a split-adjusted price of $0.090, currently $280, or 1997 Amazon at $0.075 per share. Currently $116.

Maybe those kinds of returns will be available someday, but for now, you might make money on the first few hours of trading if you have an IPO stock, but beyond the first day, enthusiasm often melts away and rational thought takes over.

IPOs are not always profitable on the first day. In May 2020, Uber was offered as an IPO at $45 and closed the first day at $42. It has traded near $20 since and is now at $27.

What to do instead

IPO traders are not, strictly speaking, investors. They are using the style “investing as an event” and it sometimes works.

The better way is the “investing as process” technique. Investigate and buy sound companies, reinvest dividends, and hold them until Mr. Market offers far more than your analysis says they are worth – after taxes. I know a fund manager who has well over a billion dollars under management and who owns between 35 and 40 securities. He has a simplifying preliminary analysis technique. “I read the president’s letter to shareholders in the financial statements. If I find the word challenge or challenging, I throw it away. I have only 35 stocks, most of which I like, so why should I invest in a company with challenges?” You would need to see the facial expression that accompanies “challenges.” Contempt is as close as I can come with a word.

If you see process, you automatically adopt a long-term patient approach. If you see event, you must have action. The old idea is, “The money is not in the buying; it is in the waiting.” Many investors cannot tolerate waiting. For an insight, farming is a process and hunting is an event. I am told that being a skilled hunter involves a lot of process too. I suppose a skilled and experienced person always gravitates towards process. It turns out to be the most efficient but far less spectacular.

Start with knowing your purpose.

When you know the why part of the problem, events can become your enemy. No one sane takes their retirement fund to a casino, even though the odds are far better than buying IPOs. When you have a long-term need, process will be your choice.

The bit to take away

No event-driven investment is idiot-proof. Be smarter. Get help if you need it and most of us do. Think process.


I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software startup, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Federal Business Development Bank.

Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.

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