Fisher Investments Explains | SPACs & IPOs: Risky or Rewarding?

Transcript

New investments often generate significant buzz, and it's easy to get swept up in the excitement surrounding opportunities like initial public offerings, IPOs, or special purpose acquisition companies, otherwise known as SPACs. These investments often promise big returns, but their long-term performance typically falls short. From 1980 through 2017, new IPOs underperformed similarly sized peers over their first five years, highlighting just how speculative these investments can be. Where a few standout winners are vastly outnumbered by the under-performers. IPO markets tend to heat up during the later stages of a bull market as optimism runs high, driving inflated asset prices. This makes it an opportune time for companies to go public, with the goal of raising as much money as possible from the sale of its shares. But by the time retail investors get involved, prices are often overhyped, leaving little room for substantial gains. As our founder, Ken Fisher says in his 1987 book, The Wall Street Waltz, IPO means it's probably overpriced. SPACs, much like IPOs, saw a boom in late 2020, raising $81 billion globally, compared to just 14 billion the year before, and another 95 billion in early 2021 alone. Public excitement attracted retail investors eager to capitalize on recent gains. However, by February of 2021, the bubble had burst, leading to a sharp decline in SPAC values. But rather than focusing on returns, IPO and SPAC activity might be more insightful as a barometer of market sentiment. For example, a sudden increase in IPO and SPACs, especially among speculative early stage companies, may indicate investor euphoria. Conversely, a slowdown could signal growing caution and skepticism as the public's appetite for these new issues dries up. While the allure of big wins can be tempting, the rise and fall of both IPOs and SPACs highlights the significant risks they carry for investors. At Fisher Investments, we believe a strategic, diversified approach provides a more dependable path towards building lasting wealth. As history shows, the value of sticking to transparent, reliable investments like publicly traded stocks and bonds. By prioritizing these principles, you can create a more secure and reliable path towards achieving your long term financial goals.