Lusting After an IPO?

A look at the recent Twitter IPO might help to cut through the smoke and mirrors of the circus-like media coverage of such events to talk a bit about how worthwhile of an investment IPOs really are.

Initial Public Offering

Two weeks ago I wrote about how billionaires might achieve that appellation through the stock market, among other methods. Last week I digressed to talk a bit about how Silicon Valley start-ups really work, as opposed to the common misperception that they are always a road to massive riches. This last week, we were presented with the Twitter and it might help to cut through the smoke and mirrors of the circus-like media coverage of such events to talk a bit about IPOs.

In the case of Twitter, at least two instant billionaires were created and many other founders and venture capitalists made lesser, but still sizable fortunes. You can be sure that the local mansion realtors and Ferrari dealers have been closely following the now-public list of these lucky shareholders. So that when the so-called "insider lock-up" period ends, and these people are legally allowed to cash out, to the extent that they want/need to, they will be warmly accommodated. The trickledown effect, don't you know.

The chief lesson for most of us saver-investors is that by the time we find out about such deals developing, they are already well known to many others and the big money has been made. But if you recall how Google went public at $80 and is now circling the heavens at $1,000, then you probably were hectoring your advisor or broker to get in early on Twitter (conveniently forgetting the intervening Facebook IPO, which tanked). But demand for new Twitter shares exceeded supply by 30 to 1, it turns out.

Who knows, depending on things like timing, you might get lucky and make some money if you get your hands on IPO stock early, especially in the short run when mania runs high. But — as cold water to the face — know that the average IPO over one-, three- and five-year terms does not outperform even small cap index funds. And an individual IPO carries a bigger risk than that, according to Steve Butler, founder and chief executive officer of Pension Dynamics Corporation. That is a 4.6% gain for the average IPO over five years versus 9.8% for the average small cap fund.

The bottom line? For most of us who are really concerned about long-term success and have a viable plan, if the urge to jump into the IPO herd comes upon you, go lie down somewhere until the feeling fades. It can be like passing up getting a tattoo: you might regret not doing it in the short run, but later on you probably will be grateful that you didn't do it.

In other mega-buck news, it has slipped under most of our radars that there is a new $100 bill now being circulated. It has been many years in the making, to try to get beyond the increasing sophistication of counterfeiters, especially the state-supported ones, like North Korea, which is thought to be the largest counterfeiter in the world, currently. There are about $900 billion in such bills actively circulated around the world and, being aware of this, the Mint has put information about the new bills in 23 languages at, if you are interested in reading about the new bills in Finnish or Tagalog, for example.

One hundred dollar bills last the longest of all bills — about 15 years (the $1 bill averages 5.9 years — probably because they are passed from hand to hand the least. Certainly, not through my hands, though. If watching TV and movie dramas are any indication, "Benjamins" are usually bundled in stacks and carried in briefcases for drug deals and bribes, not in wallets and purses for ordinary folk.

But the next time that you are at your bank, ask the teller if you can see one of the new ones if they have them yet. They are actually pretty high-tech and retain their value better than some of those "can't miss" IPOs.