IPO Investing, Apple goes EV and What’s the Vix

Podcast Transcript

Hey this is Jeffrey and welcome to another edition of Stock Smart, the February 4^th, 2021 edition and I really appreciate all the downloads. We’re hitting over a thousand downloads now and the podcast has only been up for a week. I’m really impressed. I didn’t expect the amount of traffic so far, but it’s great. And so thank you very much. So let’s talk about IPOs first. Should I get involved, should like the average investor, the retail investor get involved and there are a lot of retail investors now because of sites like Robinhood where it’s free to trade There’s a couple reasons why historically most people have said “don’t get involved in IPOs”. Here’s a few reasons, average investors, meaning you’re buying it on the exchange, will not get the initial price. What happens is when a company has an IPO,

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they essentially will give their preferred customers, like if JP Morgan takes a company public, they will give their preferred customers the initial public offering price. You’ll get the adjusted exchange rate price if you buy it as a retail customer. Someone on Robinhood or a non-preferred customer is going to get it at an Exchange price. So you’re not going to get the preferred price. You’ll get the bumped up after price and what can happen a lot of times is that someone who gets the preferred price will get a big bump in the stock and then they’ll dump the stock, so that does happen. So that’s one reason maybe you wouldn’t want to be involved in an IPO.

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The other is emotion. People get excited about these stocks, when Uber went public, people who know what Uber is, and everyone knows what Uber is, wanted to get behind the company because they’re like “I use Uber, I think it’s a great product” and it has a tendency to inflate the price of the stock because people know it, so that does happen a great deal. IPOs, when they start, you have to remember that they don’t have real world valuations. They haven’t developed the channel yet of an acceptable price. So they don’t really have support, there’s no resistance.

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Generally when you look at stocks over time, they move and we’re going to talk about volatility later, but they move within a range, within their mean so when a stock is tested over time, it will have a range or a mean that usually moves with it. But an IPO hasn’t established anything like that so it could be very volatile and can have great movements in price and price fluctuations. Another reason why you might not want to get involved in the stock that’s an IPO is because there’s a lock up period generally for insiders who hold a stock that goes public so they may have up to, the lockup period could be 6 months, where after 6 months of a stock going public, the insiders can start to sell their shares and depending on how many shares are issued to insiders,

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That could have a dramatic effect on the stock. In fact, it’s a popular short strategy to look at the lock up date on an IPO and then to be betting against a stock heading into when the lock-up period expires based on how many insiders have stock in the company. You know, with a stock like Zoom last year a lot of the people hopefully, you know, the Insiders who had that stock didn’t sell it and they did really well holding on to it, but it’s not always true in every case. So conventional wisdom says the average investor or the retail investor should not get involved in IPOs, but let’s take a look at what’s happened over to all the IPOs from 2020.

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So first one that comes to mind is Airbnb. Everyone knows the service Airbnb where you can go and stay at someone else’s home and rent at a discounted rate. I like Airbnb because I love to travel and when I take my kids with me, I love the idea of being able to make a breakfast rather than spending like $100 on a hotel breakfast when sometimes all you want is a cereal and coffee. I love Airbnb for things like that is so much more efficient economically to be at Airbnb. It’s more comfortable. You can bring your own food. You can bring your own alcohol if you’re going to have drinks and I love Airbnb. It opened at 144 when it was an IPO. That was the public offering price. that was not the initial price,

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That was the price that people could get in on. The high was 216 and the low is 121. It’s now sitting at 187 so If you were invested in Airbnb, you’d have to say it’s a winner right now. Doordash, another one that comes to mind. Most of us, especially during covid have used Doordash. Doordash opened at a very high price, opened at $189, the high was 256. The low was 135. It’s sitting at 182 right now. So within the, you know, It hasn’t been even a year. It’s down a little. Palantir the tech company that works heavily with the government, opened at $9.66. The high was 45, the low was 898, now sits about 32 to 33, has developed a lot of support and you’d have to call it a winner nearly up 400%. Snowflake tech company opened at 238, was a high of 429, lowest 208, and now its 306.

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So it’s a winner as well. And Rocket Company, which is a stock I do like. Opened at 21.60, high was 34 and the low was 17.58. It now sits around $21-22. So it’s a small winner. So I think conventional wisdom and a lot of times when you have these these relics or the Old Masters who come on these shows, CNBC. I don’t think they account, I think they account for the old days where there wasn’t as much retail investing, I think because the retail investors doing so much trading on its own, so that people are trading for themselves, either eTrade or Robinhood or any of the other companies that allow you to trade now.

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I think those are helping these IPOs because those are the people who get behind them because they are the users. Traditional institutional investors are a little more fearful because the history of IPOs which generally has not been good. Because according to Verdad Capitol, out of 4,000 IPOs, now remember this timeline. This hasn’t been reviewed since the late 80s, most of those IPOs lost 31% of their value after 3 years, after 5 years, the loss was greater at 41%, but I don’t think, I think that’s flawed data because I think this has to be looked at in a new paradigm. When you have these investors who are investing for themselves, propping up these stock because they like them, this is a new paradigm of investor.

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And so I think a smaller time frame to review data is very essential, when you look at these IPOs. So to me, we just went over five of the IPOs from 2020, there are more, but we went over five of them and there’s only one that hasn’t been a good investment for the investor. So I think conventional wisdom has changed or it should and I think IPOs, if you are, you know, if you know the company and you and you know the research and you believe in it, they can be a good thing. One IPO that’s coming up that’s interesting to people because a lot of people know it, if you’re dating if you’re single is Bumble. Bumble is going to have its initial public offering on February 11th.

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So those who like that stock or like that company, may be interested in that and let me tell you the people who invested and stayed in stocks, if you would have invested 10000 in to Amazon when it had its IPO which was in 1997, price was $18 per share, get this. You would have 19 million today. Not bad. 10,000 in Netflix in May 2002 at $15 a share would be worth about four and a half million. 10,000 in Apple and now Apple split a million times, or a bunch of times I should say. At its IPO price of $22 in December 1980, and you’d have approximately 11 million, but Buffett, I saw him last year when there were a bunch of IPOs coming out and Buffett said it’s not for the average investor.

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I’m not sure that with what’s going on in the current market that that’s true anymore. So I would say know the company, know what you’re getting involved in and stick with it through the rough patches which they will have, because an IPO is going to have to build its level of support, and then I would be a little wary when if you know, if you’re paying attention to the lock-up date, because lock up date, if you really love the stock and you want to hold it, you might want to buy a put for some protection. So that’s what I think. That’s the suggestion on IPOs from me. I think if you know the company you should get involved.

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STOCK WATCH
So let’s look at a stock now, it’s a very common stock to everyone. Most people have five or six or seven or eight of this company’s products in their home and it’s Apple and why are we going to talk about Apple, because Apple is making big news right now. Apple is nearing a deal with Hyundai to build a self-driving electric vehicle, which will be autonomous. It’s very interesting, this technology is coming.

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I’ll tell you the seriousness of this could be stated in one specific example. when Apple announced a couple months ago, Elon Musk made a comment. He knows they’re coming in and if they come in there going to be a serious competitor and you could just see, you could see all the integration possibilities with all the Apple products you already own and if you could make an autonomous car, I think from what I understand of it and I’ve been in autonomous cars before, I was in a car that was laid out with the technology made by Aptive which is also a very interesting stock, APTV. That stock has really doubled in the past year.

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I’ve been in one of their cars when I was in Vegas and Aptive, their technology is interesting, but they need to have a driver behind the wheel when it drives because it’s not going to know things like when someone jumps out of the road and or when there’s construction going on that wasn’t planned for. They have the grid mapped out really well, but they cannot understand key things that are changing, and this has to do with, what’s really interesting is what the technology is because it’s all cameras, right, it’s a bunch of cameras on the vehicle and sensors.

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The problem really is that the computer doesn’t have the ability to take the camera picture and compress it enough in a quick enough time to get the answer it needs which is instantaneous and we all know if a dog ever runs out in front of your car, you know how instantaneous that could be. So my thinking with this autonomous vehicles is it’s going to be like the express lanes. When I was in Chicago or even, California. There’s the Kennedy Expressway. We used to take the express lane everyday and that would go in one direction. So I think what we’re at for autonomous cars would be what we call a closed-loop, meaning everyone in that space or lane would be in an autonomous car.

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Now, you can imagine what’s kind of funny is I think about autonomous vehicle I’m thinking about the deductibility, if you can have business meetings in your car while drives itself to your place of business or work or home and I think that’s a very interesting going forward. Makes the car even more deductible if you will.

THE AVERAGE INVESTOR

So, let’s go to our session called the average investor or what CNBC is called the retail investor or just Joe Investor on the Street. I got a question from Jane and keep the questions coming to Jeffrey@JeffreyKamys.com. About 25-30 questions a day now, I appreciate all the feedback and the input and Jane asked me, what is the VIX? so the VIX,

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It’s called the fear indicator by people who are in the business, it’s an indicator or an index of volatility in the market. The way that the index is determined is based on the options activity in things like calls and puts and so when there’s an increase in calls and puts in the market, volatility index, the VIX increases. The VIX generally in the past has sat at 10,11 or 12. But if you look in the last year the VIX now sits in a comfort zone at 20 and what that is, is very interesting. If you’re following the market closely there has been a huge spike in options purchasing. And so what that indicates to me is that the new normal for the VIX is probably 20, meaning the resting period. Used to be 11,12. But now when you look at it over a period

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of time the new normal for the VIX is 20. Right now, it’s at 22, it spikes and goes up and down based on implied volatility. So when there’s more price differences and the pricing in the options changes, that’s how to VIX adjusts and so that could either be positive or negative. Generally it’s looked at as negative obviously they call it the fear index, the formula for calculating it is extremely complicated but what it does tell us is that there’s expected volatility. I think when you look at the VIX now you should look at it, if it’s at 20, the market is normal because we have so much more we have such an increase in options activity. The VIX baseline now is a different number, where it used to be 12. So the VIX baseline now at 20,

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So when you look at it if it’s over 30, you would think maybe the market is unsettled and that could go either way, it could go up, it could go down. Low volatility now it used to be like 12. Now you’d say low volatility would be like 20 because that’s where it’s at, we’re at 22 now in the VIX and really what the VIX does and I wanted to just make it clear, it tracks the options that are related to the S&P 500. That’s what the VIX is, it’s very complicated, but it’s interesting to watch and it really became in vogue to watch it when the VIX spiked up a year back or two years back, and it went ballistic because everyone was shorting it and we can talk about shorting it in another podcast.

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It’s very complicated. Interesting to talk about, but very complicated none the less. Hey, thanks again for listening. Appreciate all the feedback, another edition of Stock Smart with Jeffrey Kamys. Have a great day.