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The IPO of Ferrari in New York. Observe: An example of the classic IPO effect
Monday 23 November 2015
On November 3, 2015 I wrote in my blog "An exciting week. For investors, there is plenty to choose" referring in particular to the Ferrari shares. In fact,
there was much to decide. It is now clear: Investors can learn a lot from the Ferrari share Initial Public Offering.
It is typical in the stock market that behaviour patterns of investors are repeated. This is related to how the stock market operates, the financial
interests of different participants and the psyche of the investors. With the IPO of Ferrari shares on Wall Street, we have a vivid example
of such a typical stock market construct. First, some background:
With Ferrari (Symbol: RACE) we are dealing with very interesting automotive shares, which can simultaneously be assigned to the luxury segment in the stock market. This is exciting. Because here the spirits are at work: More car or more luxury brand equity? This has a significant impact on the valuation
criteria of the equity.
But that is not the case now. The share performance signals something else entirely. The stock was recently introduced at a price of $ 60 on Wall Street. The price of Ferrari shares then dropped back to the $ 50 level, and have now fallen to $ 47.60 per share. What is going on here? It appears to be the typical IPO effect. (IPO - Initial Public Offering or in German: IPO), which is unfortunately always underestimated by stock market participants!
It's an old story - experienced stockbrokers recommend treading carefully when buying shares in an IPO.
For public relations agencies, lawyers and investment bankers involved an IPO is a highly lucrative business. A lot of money changes hands. Every effort is made to achieve the highest possible opening price, and to collect the most amount of the money. The future, wherever possible, is painted in rosy colours.
Many stocks in an IPO are not placed with long term strategic holders, but end up in what we once called the "intermediate parking stations" of the financial system.
My strategy as a value investor is quite simple: I never participate in an IPO. I add the stock to my research radar screen. Then I take my time and and follow the company closely. After 6 - 12 months, the quarantine period is for me over . Until then, the IPO "misalignments" will be mostly ironed out. Occasional exceptions to this market rule leave me cold. Another stock exchange rule also applies: to avoid losses is far more important than to miss theoretical gains.
In our Value Fund "ME Fund - Special Values" this clear stance in the past 14 years has saved us a lot of grief. Finally I remember what a friend of mine S.G.
From B. Said. He works as the fourth generation as an experienced private banker of the old school. For years, he warned me: "Markus be careful. The best salesmen in the world work on Wall Street" and then he looks me straight in the eye ..... Ferrari says hello.
A successful week with plenty of "Value" , Yours Markus Elsässer