Friends,
On May 18th, 2012, Meta Platforms -- then known as Facebook -- went public in what was one of the most hyped initial public offerings (IPOs) of all time.
For the past eight years, people had signed up in droves to join the social media platform. It started on college campuses in 2004, and became globally viral shortly thereafter.
With the SpaceX IPO set to occur this week, we think there are three important things to keep in mind.
First, IPOs make people do crazy things
Eric Bleeker, then a columnist for The Motley Fool, wrote about how Facebook mania had infected non-investors:
"How do I buy a stock?"
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That was the subject line of an email passed along to me the morning of Facebook's IPO. It was from a friend of a friend, wondering how to buy a stock because she was looking to sink $40,000 -- her entire life savings, previously set aside for a down payment on a house -- toward the Facebook IPO.
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I couldn't believe my eyes. How could someone who didn't know the simplest aspect of investing -- how to buy a stock! -- be looking to put her entire fortune into a single risky Internet stock?
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That's insane!
It is truly rare to see any seasoned investor allocating that type of capital to an IPO. If it doesn't work for the pros, it's probably not best for you (or us) either.
Second, the short-term risks are higher than you think
When beginning investors make rash decisions with large sums of money, it rarely ends well.
Case in point: here's what happened to Eric's friend following the IPO
By the time the stock was trading on the public markets, all of the money people wanted to put into the stock had dried up. The mania started subsiding almost as soon as the stock started trading.
Eric's friend -- who had hypothetically allocated $40,000 (nearly $60,000 in today's dollars) -- was now looking at a balance of just $18,560 in her brokerage.
Third, you MUST play the long-term game
Here's the funny thing about the Meta IPO. It was absolutely true that the IPO was overhyped and people made poor decisions...over the short-term.
For those who made a bet on the long-term (think: years and decades) potential of Meta, it's a different story.
Eric's friend would now be sitting on a balance of $622,000. Forget a down payment -- she could own her home free and clear with returns like that!
So what's the takeaway for investors? We think it's important to remember three things:
- Volatility: If you'd like to invest in the SpaceX (or OpenAI or Anthropic) IPO, there's nothing wrong with that. But you need to go in with eyes wide open: you could see your brokerage balance experience huge swings
- Position Sizing: Knowing this, you don't want to allocate so much capital to this investment that you'll lose sleep over it. A few percentage points is more than enough -- you can always add more later.
- Long-Term View: No matter what, don't make the investment based on what you think might happen over the next couple of weeks. No one can predict the market's short-term moves. And those moves will likely be more influenced by hype than actual business results.
Morgan Housel has said investing is "The Greatest Show on Earth." The story of Meta's stock -- both its enormous stumble out of the gate and its subsequent rise -- proves it.
If there's one way to benefit from that show, it's taking the long-term view.
Wishing you investing success,
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Brian Feroldi, Brian Stoffel, & Brian Withers
Long-Term Mindset
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