After a Summer of IPO Silliness, It's Time to Get Serious

Recent IPOs point to a rather silly, surreal summer. Hazy, lazy days and escapist vacations might bring to mind a sense of carelessness and the whimsical desire to go shopping for collectibles at yard sales, but that's no way to treat investments. Unfortunately, many recent initial public offerings have seemed like summer souvenirs, guaranteed to lose value over the long haul.

Stocks aren't Beanie Babies, Star Wars memorabilia, Happy Meal components, or other "collectibles" to acquire on a whim. Stocks represent partial ownership in public companies, and there's plenty of company information to weigh on each and every company. Treating them as collectors' items is speculative and unwise, and investors can really get burned.

It's investing, not a swap meet
One of the prevailing summertime 2012 IPOs has been Facebook (Nasdaq: FB  ) . Unlike dot-com bubble-era IPOs of yore, though, Facebook's stock didn't skyrocket right out of the gate, bubbled up by speculation. Instead, the share price has steadily headed downhill.

Today, Business Insider's Henry Blodget detailed how everything investors needed to know was right there in the IPO prospectus from the very beginning, so complaining is a little bit absurd. Apparently, any Facebook investors who are shocked by recent developments failed to put the prospectus on their summer beach reading lists.

Meanwhile, the fact that some viewed this very, very hyped stock as something akin to a "collector's item" in a hot company rather than a real investment with a solid thesis underlines what good investing isn't.

Out of bounds
The summer's IPO madness didn't begin and end with collectible social media stocks. My colleague Brian Richards recently detailed why Manchester United (NYSE: MANU  ) is the ugliest IPO of the year, and it was probably helped to the IPO goalpost by the JOBS Act, no less.

An IPO like this only makes sense if you've had a few too many margaritas and a bad case of sun poisoning. Of course, it could be viewed as a "collectible," too.

Meanwhile, even though there's reason to worry about consumer spending, high food prices, and the restaurant market right now (look at the bearishness that has dogged Chipotle (NYSE: CMG  ) and other bistros recently), perhaps some investors want to collect a few shares of their favorite restaurant IPOs anyway, regardless of their actual growth potential, just because they fit in the recent "IPO" universe.

Bloomin' Brands (Nasdaq: BLMN  ) , which owns Outback Steakhouse, Carrabba's Italian Grill, and Bonefish Grill, is yet another IPO that hit the scene this summer, and Sean Williams recently made it his pick for the worst IPO of the year.

These aren't the stocks you're looking for
Some of this stuff makes you wonder why Star Wars didn't go public. Its ticker symbol could have been JEDI.  

Beyond schadenfreude, one good sign is that some of the most ridiculous, overhyped, or unwise IPOs haven't been rewarding people in the short term simply for speculatively buying a stake without doing any research. Longtime Fool Rick Munarriz's wrap-up of the IPO season showed that Manchester United hasn't been a riotous success, for example.

Burger King's (NYSE: BKW  ) IPO after having been private for less than two years doesn't seem to have snookered anybody, either.

Meanwhile, MarketWatch has just issued a "buyer beware" warning on IPOs, revealing data on returns that indicates that individual investors would be better off waiting until after the bubbly first year or two of many companies' publicly traded histories before buying their stakes.

Indeed, taking a deep breath and a patient approach gives more time to check out the information outlined in the newly public companies' final prospectuses and subsequent SEC filings, available for free on SEC.gov.

Patience is a virtue, and stocks aren't collectibles. Companies have many more aspects of why their stock prices do what they do than a rare Boba Fett action figure: competitive positioning, valuation, debt load, growth potential, goodwill, and so forth.

Enjoy your Labor Day weekend, and then make sure to get more serious than has been the fashion in the summer of collectible IPOs.

Check back at Fool.com for more of Alyce Lomax's columns on environmental, social, and governance issues.

Alyce Lomax owns no shares of any of the companies mentioned. The Motley Fool owns shares of Facebook and Chipotle. Motley Fool newsletter services have recommended buying shares of Facebook and Chipotle. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 04, 2012, at 12:23 PM, Darwood11 wrote:

    Alyce, good article and I agree with the sentiment;.

    I particularly like your observation that "It's investing, not a swap meet." Nor is it a kumbayah hand holding session. When the music stops, some people will be left standing!

    It took me a while to shift from "get rich quickly" (in less than 10 years) to "become an investor." I'm about 1/2 of the way there. That's why I'm still working, saving and learning. Not that a life of continuous education and development is a "bad" thing. Quite the contrary! There is a price for personal financial failure, and it means earning money the old fashioned way, and saving.

    In my case, there were some early wins, such at Telebras. Having a few early successes can do wonders for the ego, but really damage one's finances.

  • Report this Comment On September 04, 2012, at 2:39 PM, TMFLomax wrote:

    Darwood11, thanks for the great thoughts, as always! I love hearing observations like these! True investing is a patient process, and we all share the need for continuous education, development, and patience as you say. Also true that none of us are going to be right all the time, but we can learn from our failures. Thanks so much for this comment!

    Best,

    Alyce

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