Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
Stocks are little changed this morning, with the S&P 500 and the narrower, price-weighted Dow Jones Industrial Average (^DJI -0.11%) down 0.41% and 0.13%, respectively, at 10:20 a.m. EST.
Shares of Twitter (TWTR) will begin trading this morning on the New York Stock Exchange in the most highly anticipated initial public offering since Facebook's (META -0.52%) May 2012 debut. There is enough uncertainty in the stock market that it is often unwise to offer a categorical opinion on any given topic, but I want to be unambiguous in my position on this IPO: Investors ought to avoid this stock today (and for some time afterwards, in all likelihood).
Paradoxically, I think there is every chance that the stock will perform well today. Twitter's management has tried to apply the lessons of Facebook's disastrous debut, trying to run an IPO that is lower-profile and thus less likely to succumb to its own hype. I think it has succeeded to some extent, but there is clearly massive underlying demand for the shares: The underwriters this week raised the offering price range to $23 to $25 from $17 to $20 before finally pricing the stock at $26. That didn't stop the shares from being oversubscribed.
There is an illusion of inevitability that surrounds a stock like Twitter's. Surely, with a service that is so ubiquitous and has already transformed the media and communications landscape, the business -- and, by extension -- the stock cannot be anything other than a success. But that reasoning contains two leaps of logic that are highly contestable.
First, there are examples of services that have transformed the way we live in fundamental ways without spawning good businesses. Airline travel comes to mind.
Second, a good business does not always translate into a good investment. Every asset has a fair price, and overpaying can introduce a disconnect between an asset's quality and the investment results you achieve. On that score, Twitter look very expensive, indeed. Yesterday, I observed that the company's implied market value, based on the $26 price, is nearly $18 billion -- in the same region as LinkedIn's (LNKD.DL) $26.4 billion value. That's a terrible comparison for Twitter; its success looks a lot less inevitable than LinkedIn's, even as LinkedIn's valuation looks stretched.
Bottom line for investors: Don't get drawn by the hype into buying Twitter shares today. Even if you're really interested in owning a piece of this business, there will certainly be better buying opportunities. All eyes are on Twitter for its coming-out party, but let other investors pay their respects in kind.
