So far in 2018, investors have been rewarded with initial public offerings – IPOs. With the DJI down 627.65 points at 3:10 pm, IPOs are fairing better than the general U.S. market.
In the United States, listed companies soared 36% on average from their IPO prices. That is better than the 9% gain for the S&P 500 index. The powered a surge in new issues cannot be denied. With 189 companies raising over $50 billion in IPOs in the U.S. , the first three quarters has made 2018 the busiest year for new issuance by both measures since 2014. Helping explain investors’ hearty appetite in IPO volume, the number of public companies overall was at historic lows and many of the hottest startups’ recent years, Uber Technologies Inc. and Airbnb Inc. to name a few remained private. As a result, there has been a feeding frenzy around companies that do go public, as many of them have outsizes growth prospects.
Even though IPOs are better than even bet to appreciate over the near term, cash flow and fundamentals are still essential ingredients for successful investing for the long term. Value still rules, especially if the IPO’s game plan is a growth industry and assembled a smart management team to go the distance. However, a major down market sinks all ships.