With the recent delisting of public companies that came from IPOs, you might think that people would be careful in investing in IPOs. RWM and Melco delisting with a tender offer price half of its IPO price, you think that investors would never forget.
But no, KPPI (Kepwealth Property Philippines) just soared from P6 to P27 a few days after it IPOed. Even the company itself doesn’t know why. You can learn some things from this:
- The market is never predictable
- Greed knows no bounds
- People have short memories
I have a rule in life, born out of necessity from being frugal and I want to share them with you.
Never buy what is being sold.
If someone goes to your house and tell you of the good news and a great opportunity, you are being sold something. Just say no. It may be a business opportunity or a new religion. Just say no. IPOs are kind of like that, I tend to look at them as being sold to me. So I just say no. Not because Warren Buffett and other great investors says so, but it makes sense to me. Of course, the opinion of Warren Buffett has something to do with it.
Why should you not buy what is being sold?
For one, the seller knows more than you, about the item being sold. That’s why its very risky to buy a property without doing due diligence. Its very risky to buy second hand properties and items being sold on the market. If the item is such a great opportunity, why are they selling?
IPOs are like that. We, the investors don’t know about the company the way the owners do. They don’t have enough public records to even make any logical conclusion. Not enough history and not enough bad news to really know all the sides of the story. We can only see the good news when IPOs are being promoted.
Does that mean we should NEVER buy IPO?
No. I bought some IPOs a few years back. I bought PGOLD on its IPO and sold at 30 – 35. But that came from a personal knowledge that our province which is as far away as possible to any city, has had a PGOLD warehouse being put up. That’s why I thought it could be a worthwhile risk as those expansions and new stores are not yet included in the IPO price.
But things like those are hard to come by. I just have a personal knowledge and edge. Most IPOs are not like that. Most IPOs are promoted because the promoters are incentivized.
Currently, there are 2 IPOs that are inline to go public. Villar’s Allhome and Axelum the coconut exporter. I have never read Axelum’s IPO prospectus, but judging from what I read in the news, its IPO price is around P/E 22. When I read that, you already lost me. Its hard to find bargains on IPO. Its not the field a value investor should look.
But I did read Allhome’s IPO prospectus. And here’s what I think about Allhome. There is a lot of conflict of interest in that company. The owners and the shareholders have different interest. It just means for me that, when push comes to shove, you know how the shareholders will fare when they split the profits. You know that drill, “One for you, two for me”.
So all in all, I’m going to stay on the sidelines with regards to this IPO. But that’s just me, because I’m a value investor and I like bargains. And I don’t see any bargains in these lineup of IPOs.
I could also be wrong though…
How about you? Are you going to buy into this IPO?
It’s a no for me as well. I’ll wait how they are performing maybe on the next ghost month. Too much hyping and promotion then when I out the P/E ratio, its going for some crazy figure that we all know cannot be sustained by their current performance…at least based on the existing records we can get.
*when I check out the P/E ratio
Had you seen that news about making all passive income at 15%? Bonds to stocks. It sounds like a deal breaker for someone who want to create a portfolio out of dividend income.
You mean the 15% tax on passive income? Yeah it sucks. But there’s nothing you can do about it. You just have to compare investments more thoroughly from now on.
Yeah. Sad life.
Actually baka maging mas balanced na ang investments ko then. Aside from checking out other Stock Markets in the future, I’ll add more investments example in Retail Treasury Bond then Mutual Funds na more on defensive side. Then I’ll be more open on investments that don’t give high dividend but has growth potential.
Well, aside from the passive income, I’m also working on increasing my active income by enhancing my skills. Yung investing sa sarili like trainings and certifications. Ang labanan nalang dito kasi ay kung mataas ang investment mo, kahit dun ka sa very safe investments like bonds, kikita ka pa rin ng passive income kung mataas naman ang base.
How do you screen undervalued stocks? How do you fish one out or a group of stocks out of the many stocks in the whole market?
I just read news and annual reports.
Thank you for inspiring me to make a blog about investing especially in value investing 🙂
Ate may link po ba kau sa sinasabi nyong 15% on passive income? dito po kasi sa link na nabasa ko from 2018 is 10% lang talaga ang dividend income. Wala ako makita na 2019 na nataasan na raw po ito ng 15%
Would you happen to have an initial analysis on how HVN got to its share price of 435 from its IPO price of 10.50 3 years ago? Would very much appreciate it.
Nhey, it was a different company back then. The rumors that Villar will use HVN as a backdoor listing for his mass housing company that’s why it went up to that price.
Oh, so would you say that it got to its crazy price because of mere speculation? Plus small float? Thank you in advance!
Yes. Its speculation at this point.