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?