The price of a share of Apple (AAPL) is almost 30% below the high that it set back in September 2012—about five months ago. Even before its peak, the price of Apple shares had already made it the most valuable company in history. In those heady times, Apple shares reached $702. Today, they are at $503. Even today, however, Apple remains the largest single holding in the S&P 500 at about 3.6% of the total index. It is mind boggling to consider that the market value of the most valuable public firm in history could decline by 30% in five months, without some sort of catastrophic event. But this is the situation and there are some lessons to be drawn. (more…)
Posts Tagged ‘IPO’
Posted in Active Investing, Asset Allocation, Behavioral Finance, Diversification, Investors, Leverage, Market Outlook, Market Timing, Markets, Risk, Stock Investing, Uncategorized, tagged Alok Kumar, Facebook, Gambling, IPO, lottery ticket investments, skewed on May 30, 2012 | 5 Comments »
In the academic finance world, it’s fairly common to find comparisons of investors to gamblers and certain types of stocks have been referred to as ‘lottery tickets.’ I’ve found that this comparison is actually quite important. There is an odd paradox between the assumption that investors are rational when it comes to investing, yet still spend an awful lot of money playing the lottery. When we speak of “lottery ticket” investments, we are talking about investments that have a small probability of a big “win” and a large probability of a modest “loss.” And this is precisely the situation with lotteries.
The reality is that people spend considerable sums of money on lottery tickets, a money gamble that has a negative expected value. This same appeal (big, low-probability win, modest high-probability loss) also seems to motivate some investors. (more…)
Posted in Active Investing, Asset Allocation, Behavioral Finance, Investors, Leverage, Long-term investing, Market Outlook, Market Timing, Markets, Risk, Stock Investing, Uncategorized, Volatility, Wealth, tagged asset allocation, Avaya, Behavioral Finance, flash crash, Groupon, GRPN, Income Investing, investing, IPO, IPOs, LNKD, long term investing, P, Pandora, Risk, stock investing, volatility, ZAGG, Zyngna on June 13, 2011 | 6 Comments »
I have not seen this type of brand name IPO trading volume for quite some time. From Groupon (GRPN) and Pandora (P) to Zynga (ZAGG) and now Avaya, the media would have you believe that investing in a brand name IPO is a quick fix for your portfolio.
Take the recent public stock offering in LinkedIn (LNKD) for example. The IPO price was set at $45 and jumped to $90 after one day of trading. As of this writing, the price is just below $73. At its current valuation, Morningstar estimates the Price-to-Earnings (P/E) ratio at 466. By comparison, the tech-heavy NASDAQ has a P/E of less than 20 (as of this writing).
Clearly, many people are very excited about the LinkedIn IPO and it shouldn’t surprise you that investors have had a long history of enthusiasm for IPO stocks. But has this enthusiasm ever paid off over the long-term? (more…)