As the Stock Market Cools, What Does the Future Hold for IPO’s?
It seems that panic and Wall Street don’t go well together. And while we may be stating the obvious, it’s an important trend to keep in mind. Earlier this month, the stock market took a bit of a downturn, and that’s OK. It happens. But the timing of this most recent slide, or panic if you will, also coincides with what seems to be the peak of the IPO craze. Fortunately, wiser heads do better than panicked ones, but that doesn’t mean that we shouldn’t take a closer look at some up-and-coming IPO’s with a sharper lens, and maybe, just maybe, pull back the reigns a little bit to see how it all pans out. IPO’s are HOT, but if investors, and the stock market rush in without knowing what they’re getting into, they may be in store for an unpleasant surprise.
This year has had a record showing for US IPO’s, and global IPO’s as well. So far, companies have raised $73.6 billion this year, which accounts for an 84% gain from the previous year. Chinese online retailer Alibaba made headlines earlier this year after their IPO broke records by generating $25 billion after going public. But it also may have represented the peak of the hot IPO market. While it’s hard to be certain, there are many indicators that show us there are some hot companies ready to make their initial public offerings, although the timing may not be perfect. Here’s why:
The markets may be too volatile, for now…
In mid September the Dow Jones industrial average hit an all-time high of 17,279. In mid October, it had lost roughly 1,000 points. The market naturally ebbs and flows, but 1,00 points in 4 weeks are certainly not normal. Is it cause for panic? No. But it is a sign that the markets are volatile, and that you should be paying attention just a little bit more. And whenever the markets dip, the bears come out in full force.
A volatile market can be profitable if you play your cards right. However, it may not be the best time to release your IPO. The trick is, finding the right moment, and right IPO to invest in, and not letting market volatility scare you away. This is however, tougher than it sounds.
A dip in the market is not a recession. It’s not the beginning of the end. And it’s not, in most cases, the nail in the coffin for new IPO’s. Investing in a volatile market, though, does require some smart advice, quick thinking, and the openness and ability to take risks. In a recent interview with the Boston Globe, Sean Dalton, a partner at Massachusetts-based Highland Capital Partners reiterated this point by saying “What this really requires them to do is make sure the fundamentals are there: the numbers, the story, the positioning. If you’re not there, this is a chance to slow things down a little bit and make sure you address those deficiencies.”
In other words, a shaky market may cool down the buzz on IPO’s, but that doesn’t mean it has to cool down your strategy to invest in them. It just takes a bit more research and planning. Will you get a piece of the next Alibaba? Not likely. But that doesn’t mean that the index of fresh, new companies headed down the pipeline don’t hold some major potential. At the end of the day, it takes a cool head to prevail in tough times. Will you have the patience to weather the storm?