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<\/a><\/figure><\/div>\n\n\n\nNow, unfortunately, it is extremely hard for us \u201cretail\u201d investors to be able to buy shares of these IPO stocks before they hit the market. That might not seem like a big deal if you\u2019re just starting to learn about this process but trust me, it really is.<\/p>\n\n\n\n
IPO\u2019s have been HOT lately and the pricing that people are willing to pay is simply ludicrous. Remember, you haven\u2019t really seen a ton of history with this company but you have seen an S-1, which is an SEC filing required to take a company public that does have some consolidated financial data.<\/p>\n\n\n\n
For some reason, people just get infatuated with these IPO\u2019s and want to invest at literally any cost at all. Maybe it\u2019s because it\u2019s something that is new and shiny or maybe there is a completely different motivation behind it. We have seen some just go crazy over the past few years like Uber and Beyond Meat, but the one I want to drive down into is Snowflake (SNOW).<\/p>\n\n\n\n
The reason I really want to talk about SNOW is because it\u2019s by far the company that I have loved the most, prior to becoming a public company. I had heard about them from a few different of my favorite podcasts<\/a> and it made me do some more research and I fell in love with them.<\/p>\n\n\n\n I loved the fact that they were a cloud company in a world where cloud is exploding with insane returns<\/a> and also that they had some absolutely astounding revenue numbers. I was dead set on investing in this company once they IPO\u2019d and I could get my hands on some shares.<\/p>\n\n\n\n Well, the issue that I didn\u2019t really think about is that you know how I found out about them on a podcast?<\/p>\n\n\n\n Well, so did a ton of other people. And the hype for this company was just stupid. Like really, really stupid.<\/p>\n\n\n\n So stupid in fact that the price of these shares just skyrocketed. Look at the history of pricing:<\/p>\n\n\n\n\n\n\n\n Yes, I am not lying \u2013 the price that you could\u2019ve bought Snowflake for was $245. Just a mere 327% of the initial price recommendation of $75.<\/p>\n\n\n\n Doesn\u2019t that just seem ridiculous? Kinda feels a little bit rigged to me.<\/p>\n\n\n\n Now, investing in companies fresh off their IPO didn\u2019t always used to be like this, but there\u2019s this sense of hysteria around new companies where people can\u2019t get enough of them. They\u2019re so eager to invest in these sorts of companies like Airbnb where the stock just goes absolutely insane that first trading day.<\/p>\n\n\n\n I totally understand going crazy over a stock that you have fallen in love with and dumping a ton of money into them, but all of these new companies just seem to be nothing more than hyped up speculative investments with no profits and small revenues.<\/p>\n\n\n\n Admittedly, I am a sucker for these speculative investments<\/a> but I keep them to a small percentage of my portfolio because they\u2019re just so dang risky.<\/p>\n\n\n\n \u201cOur profits grew by 400% last year!\u201d \u2013 freshly IPO\u2019d company<\/p>\n\n\n\n \u201cFrom what – $1 to $4?\u201d \u2013 Me<\/p>\n\n\n\n Obviously, that\u2019s an insane hyperbole, but you get what I\u2019m saying. You\u2019re not going to see Disney 4x their revenues in a year cause they\u2019re a massive, established company.<\/p>\n\n\n\n But fortunately for us, there are other ways to get in some new companies, and that is with a SPAC, or Special Purpose Acquisition Company.<\/p>\n\n\n\n A SPAC is essentially a shell company that is created and then publicly traded on the market. Their goal then is to find an acquisition target and purchase them, effectively bringing that company public.<\/p>\n\n\n\n The SPAC literally has zero operations, revenues, profits, anything, until they acquire that company \u2013 yet you can still buy shares. Sounds like the definition of speculation, right?<\/p>\n\n\n\n SPAC\u2019s have really been a new trend in recent years because of this extreme market volatility that we have been experiencing. SPAC\u2019s are a more sure-fire way to get that company to go public and a lot of times they\u2019re started by gurus like Chamath Palihapitiya.<\/p>\n\n\n\n You might\u2019ve heard of Chamath during the recent trading frenzy with GameStop and the Reddit users, but he really has quite the bio as an early Senior Executive at Facebook, minority owner of the Golden State Warriors, and one that brought other major companies to market via the SPAC route such as Virgin Galactic and Opendoor.<\/p>\n\n\n\n He also is leading some SPAC\u2019s now that are rumored to acquire SoFi, the personal finance and investing platform that you might be familiar with regarding student loan restructuring.<\/p>\n\n\n\n The thing that I like about the SPAC\u2019s is that you have the ability to invest in that specific company as soon as the news on the street is leaked out. For instance, when the rumors started to fly about SoFi being an acquisition target, you could go buy that shell company with the hopes and anticipations that they actually do acquire them.<\/p>\n\n\n\n Now, again \u2013 this is purely speculation. Everything could end up being just about nothing and for whatever reason the deal falls through. Or, maybe they never were planning to acquire SoFi in the first place.<\/p>\n\n\n\n In general, the SPAC timeline is shown below from an awesome article from PWC talking about the ins and outs of how SPACs work:<\/p>\n\n\n\n Now, onto the fun part \u2013 can you actually partake in this IPO and SPAC investing?<\/p>\n\n\n\n Well, I have good news and bad news\u2026<\/p>\n\n\n\n You certainly can, but likely not in the matter that you want to\u2026<\/p>\n\n\n\n Let me explain first with talking about IPO\u2019s.<\/p>\n\n\n\n It\u2019s basically impossible for the common retail investor to get into these companies prior to them hitting the open market. Now, I was hopefully optimistic that if I bought into an ETF, then maybe that ETF would have the buying power to get into these companies prior to them hitting the market\u2026wrong.<\/p>\n\n\n\n So, you basically have two options, and they\u2019re the same two options with investing in any stock:<\/p>\n\n\n\n 1 \u2013 Buy the stock on its own after it\u2019s on the market<\/p>\n\n\n\n 2 \u2013 Buy an ETF that also owns that stock<\/p>\n\n\n\n Womp womp. I told you it likely wasn\u2019t what you wanted to hear.<\/p>\n\n\n\n There are some ETFs out there that track IPO\u2019s<\/a> but they all only buy the shares once they hit the market, and some of them have specified times that they will buy the shares rather than at the first available time.<\/p>\n\n\n\n The most common IPO ETF that I hear frequently talked about is the Renaissance IPO ETF (IPO). I had hoped that if I bought shares of this ETF then I would actually be able to pull a quick one on the system and get in before the IPO\u2019s hit the market\u2026nope!<\/p>\n\n\n\n Turns out that IPO is simply just buying these same companies when they hit the market and then holding them for 2 years before cutting bait.<\/p>\n\n\n\n Below is a view of the top 10 holdings of IPO as of 2\/2\/21 from ETF.com<\/a>:<\/p>\n\n\n\n I\u2019m guessing that you have heard of a lot of these names before. Truthfully, I\u2019m a bit surprised to not see some of the big new names on here like Airbnb, Snowflake, DoorDash, etc., but maybe those companies are just a bit too old and this ETF is choosing now to get too wrapped up in those stocks at the very beginning.<\/p>\n\n\n\n Now, as we all want to know \u2013 how does it fare against a common benchmark like the S&P 500<\/a>? <\/p>\n\n\n\n Again, using ETF.com, I show the following performance:<\/p>\n\n\n\n Pretty much spot on with the S&P 500 over the last 5 years up until COVID-19 really hit in March of 2020. At that point, you see the two ETFs drop in tandem and then IPO just takes off like a rocket!<\/p>\n\n\n\n Now, I\u2019m not terribly surprised because growth stocks have been on a tear lately, but that doesn\u2019t mean it\u2019s going to continue in the future<\/a>. Truthfully, it\u2019s hard to really judge the performance of this ETF while we\u2019re still in a bull market despite being in a global pandemic.<\/p>\n\n\n\n Is that weird to read? It was weird to write. The stock market is at all-time highs and we\u2019re still in the middle of a global pandemic. Just pure insanity.<\/p>\n\n\n\n But that\u2019s neither here nor there, because we still have SPAC\u2019s to talk about!<\/p>\n\n\n\n Now, can you actually invest in SPAC\u2019s? Heck yes!<\/p>\n\n\n\n Remember how I talked about Chamath earlier? Well, you can actually invest in some of the SPAC\u2019s that he has on the market such as IPOE and IPOF.<\/p>\n\n\n\n IPOE is the SPAC that is rumored to be taking over SoFi and just look at how it has performed since it went public on 11\/30\/20:<\/p>\n\n\n\n The company is up nearly 150% and remember \u2013 it literally does nothing. Like absolutely nothing at all. You\u2019re just hoping that it actually acquires a company with some sort of financial metrics at all.<\/p>\n\n\n\n IPOF on the other hand is another SPAC of Chamath\u2019s but the difference here is that there are zero public rumors about the acquisition target for this SPAC. AKA even less info than IPOE, but who cares? This one is up only 50% in two months since becoming public:<\/p>\n\n\n\n 50% in two months? Psh. That\u2019s chump change.<\/p>\n\n\n\n Obvious sarcasm. Just mind-blowing stuff right here.<\/p>\n\n\n\n Of course, there are some SPAC ETF\u2019s as well (why wouldn\u2019t there be?) that you can use if you want to avoid picking an individual stock. Normally you\u2019d choose an ETF over an individual stock because you\u2019re risk averse, but if you\u2019re investing in a SPAC then you can just throw that excuse out the window.<\/p>\n\n\n\n One of these SPAC ETF\u2019s is the Defiance Next Gen SPAC Derived ETF, trading under the ticker of SPAK. SPAK tries to accomplish the following per ETF.com.<\/a> <\/p>\n\n\n\n Unfortunately, this ETF is so new that it doesn\u2019t even have a year of data that we can compare vs. the S&P 500:<\/p>\n\n\n\n You\u2019ve probably heard of some of their top 10 holdings, primarily the top 2 (both of which are speculative investments of mine):<\/p>\n\n\n\n![\"\"](\"https:\/\/eor7ztmv4pb.exactdn.com\/wp-content\/uploads\/2021\/02\/b297p2.png?strip=all&lossy=1&ssl=1\")
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