I hope you get only a fraction of the shares you ask for (see part 1 for why), that the trendy boutique price pops on the offering date, that you get out before the you-know-what hits the fan. We sell Alloy (Aluminum) and Steel Original Replacement wheels at less than half the price of the dealers. If you receive shares in the acquiring company, you can defer paying capital gains taxes until you sell those shares. Profitability measures: Profit margins (net and operating), tax rates and returns on equity and capital. Dividend policy measures: Dividend yields and payout ratios, as well as cash statistics (cash as a percent of firm value). Financial leverage (debt) measures: Book value and market value debt to equity and debt to capital ratios. At the risk of shortchanging the book, the central story in the book is a simple one. Equity multiples: Price earnings ratios (current, trailing, forward), PEG ratios, Price to Book ratios and Price to Sales ratios. A strategy of investing in IPOs at the offering price looks much better on paper than it works in practice. In an ideal world, all our food would be organic, but in today world its much cheaper to use chemical supplements, aids and for other such uses when it comes to producing food.
Executives at companies are our baseball managers, flaunting their industry experience and asking us to trust their gut feeling and instincts, when it comes to big decisions. Like Billy Beane, I trust the numbers far more than either analyst stories or managerial instincts, and it is for that reason that I started gathering raw data on individual companies about two decades ago and computing industry averages for a few key inputs into investments: risk, return and growth. Equity research analysts are our baseball scouts, asking us to trust their story telling skills when picking stocks. Back in November, I also recommended Dollar General as one of three stocks of relative values compared to Nio (NYSE:NIO), the Chinese electric vehicle maker. The answer to this question is simple: despite general strong support for the EMH, it is still just an approximation. To see the link, note that IPOs go through hot and cold phases, with years in which you have hundreds of IPOs and years in which you have a few dozen. 3. Data for post-mortems versus data for predictions: As I see it, data can be used in two ways. There are two ways that you can invest in the S&P 500. The first is by buying individual shares.
The first is to generate post-mortems (about past performance) and the other is make forecasts for the future. The first is that someone (an accountant, a data service, me) is doing the measurement and imposing his or her judgment on the measured value. Each year my coverage has expanded, driven partially by external demand and mostly by easier access to raw data. Starting in 2003, I went global and a year or two later started providing data on the individual companies as well. 2. Data has to be measured: That is again stating the obvious, but implicit in this statement are two points. All of the academic studies that show the average underpricing are implicitly based upon the assumption that you can create an equally weighted portfolio of all IPOs, when in fact, a non-discriminating investor will end up will be with too much invested in all of the worst IPOs.