📈 IPOs by the numbers
October 19, 2021
The Gist
TOGETHER WITH

It's Tuesday again! According to Moody's Analytics, take a guess at how much more the median US household is spending each month on housing, fuel, and food thanks to inflation? a. $0, b. $175, c. $475. Check the Trending section for the answer.

Today's money topics:

  • Is getting in on an IPO worth it?
  • Oil prices & pain at the pump
  • Year-end financial planning tips

INVESTING

Is getting in on an IPO worth it?

Giphy⁠—Bumble's IPO on February 10, 2021

The stock market plays host to many IPOs every year. In fact, it averaged 195.3 IPOs per year from 1999-2019. Recently, however, that number has increased dramatically. In 2020, we witness 407 IPOs—that's more than double 2019 stats and the highest since 2000 at 429 offerings. 

But get this: 2021 has already notched over 700 IPOs—an all-time record. This number will undoubtedly continue to climb higher as many more companies remain on the docket through Q4.

Number of IPOs in the US from 1999 to 2020

Source: Statista 2021

What’s the rush?

We all know the market is a cyclical, emotional being that’s heavily reliant on sentiment and external perturbations, and this shows itself again within our recent IPO boom. Individual investors, or, “retail” traders as we call them, have been entering the market in swaths over the last couple years.

With over 10 million new individual accounts opened by June of 2021, a figure that exceeded last year's total, it’s clear that retail’s desire for investing is far from satiated, and the trend continues. 

That being said, companies take note of this. Market performance comes and goes, but market participation is an attractive, and often a more consistent indicator that draws in businesses that may have been contemplating an IPO. So, retail influences the markets in more ways than just meme stocks.

Should we get involved?

Whether or not an IPO is a good investment for you is a very subjective matter and highly dependent on your strategy and desired outcome. That being said, with so many contestants in the race this year, it’s tempting to lay a bet on one or two horses every now and then. 

So, here’s what you should consider first:

  • Offer price vs. opening price: The price an IPO is offered at versus what it begins trading at are two different things. The number of investors who are able to get in at the offer price is very slim, and it's usually limited to institutional investors. As an individual, you’re likely going to be reliant on the opening price at market open. Historically speaking, this significantly limits your upside, with the average IPO price increasing just 1.3% intraday. 
  • Day one vs. the long-term: It’s not uncommon to see a lot of volatility on the first day of trading, especially with highly anticipated IPOs shrouded in fanfare. This inevitably results in some big pops and some big drops, but this isn’t indicative of the long-term ROI. CNBC found that most 6-month gains were negligible. 
  • So, it depends on your goal: If your only prerogative is to get in early and get out as soon as you’ve notched a 10% jump, investing in IPOs might be for you. Just beware of the Pattern Day Trader (PDT) rule. Alternatively, if you just want to set and forget it, you should ensure the business is one you fundamentally believe in for the long term.

☝️ On that point, if you're looking to get an insight or two on how to value stocks as you look to invest, look no further:

COMMODITIES

Oil prices & pain at the pump

The pain often experienced at the pump when gas prices have climbed yet again.

The commodity markets aren’t likely something that most of us as individual investors participate in, yet almost all of us engage with the products they produce and their subsequent prices on a day-to-day basis. 

It can be easy to passively dismiss headlines about crude oil prices topping their highest levels since late 2014, or the fact that natural gas is climbing right along with it, but the effects of these fluctuations will eventually reach us.

Here’s the gist

U.S. crude oil prices were up over $81 at the time of writing, a price that represents an approximately 125% year-over-year gain from last October. Crude is outgunning copper prices by its widest margin since 2002, and natural gas is coming right along with it.

Some analysts believe crude prices could reach or top $100 this winter if demand does increase, putting more and more pressure on consumer gas prices at the pump. 

This all comes at a time when supply chain issues persist and it's handily contributing to the situation as the cost of shipping anything at all continues to rise. When we combine this with a brewing energy crisis across Asia and Europe, we end up with the perfect commodity storm.

Source: WSJ

Why it matters to us

  • Inflation? Being as commodity prices are quoted in USD, they’ve long been thought to serve as a portfolio hedge along the lines of gold and silver, insofar as they have an inverse relationship with the strength of the dollar. 
  • Further factors: A shortage of natural gas in conjunction with 13-year highs in price could further increase demand for alternative energy sources, putting more pressure on an already boiling crude market. 
  • Gas prices: This is contributing to pain at the pump as well, as the price of crude oil contributed to 67% of the price you pay per gallon. This is evident, as average gas prices in the U.S. reached their highest point in over 5 years according to GasBuddy.

🤔 Has think got your thinking about investing in commodities or learning more about it? If so, take this bite-size lesson before you go:

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FINANCIAL PLANNING

Year-end financial planning tips

It feels like 2021 has passed us by in a blink, and the arrival of Q4 serves as yet another reminder of just how ephemeral and fleeting each and every year is. Or maybe it's just the aging process... 2020 still doesn’t count, right?

This is the time of year when many begin looking forward to the next, maybe even setting lofty goals or some resolutions we’ll forget by January 12th. But, how often do we use this period as a time of financial reflection? Probably not as much as we should. 

Some money tips to think about for the year ahead

  • Handle the fundamentals: The fundamentals of personal finance usually come down to a few key things. Budgeting, saving, and investing, usually in that order too. You can’t build a home until you’ve laid the foundation, just as you’re unlikely to achieve financial freedom without one either. It’s never too late to make the basics a priority. 
  • Tax-code changes: The pending changes we’re eyeing now remain nothing more than a proposal, be prepared for them anyway before you start raking in that 2022 money. Some changes include a higher income tax rate for the top bracket earners, a higher capital gains tax, and prohibiting Roth conversions for high-income earners. These adjustments all warrant our consideration, even as they remain pending. 
  • Organize your investments strategically: If you’re an active investor, you’ve likely experienced that feeling of disarray as your portfolio becomes increasingly cluttered. Sometimes, it’s okay to cut your losses on some holdings and move on to the next, or even create separate accounts on different platforms so they are better aligned with their purpose to create order amongst your holdings.

💡 If you've had some lofty gains and want to offset those gains with some losses, do you know about Tax Loss Harvesting? If not, take this quiz:

ASHU'S CORPORATE CORNER

Today's Movers & Shakers

  • Procter & Gamble (-1.1%) falls as the firm faces higher commodity and transportation costs
  • J&J (+1%) after beating the street on profits and revenues while raising the full-year outlook
  • Travelers (+3.3%) after topping the street & a boost in underwriting and investment businesses
  • BNY Mellon (-2.5%) in spite of higher revenues and profits vs. the consensus
  • Halliburton (-1%) missed on revenues but matched estimates on profits 
  • Walmart (+2%) after Goldman Sachs added it to their conviction list
  • Philip Morris (-1%) in spite of beating the street on earnings and revenues
  • Alibaba (+2%) will use its own chip in its data center

This commentary is as of 8:59 am EDT.

📈 TRENDING ON FINNY & BEYOND

  • Answer: $175 it is, according to Moody's Analytics. The median household (with an income of about $70,000) now pays an extra $175 a month on food and fuel due to inflation (The US Sun)
  • Uncomfortable inflation is here, and it’s changing the economy (WaPo)
  • A Bitcoin ETF is almost here. What does that mean for investors? (WSJ)
  • Finny lesson of the day. With more investors looking to invest in asset classes like commodities (i.e., oil, gold) in market environments like we're in now, learn more about what it means to invest in commodities? 

Finny is a personal finance education start-up offering game-based personalized financial education, a supportive discussion forum, and simple stock and fund tools. Our mission is to make learning about all things money fun and easy! 

The Gist is Finny's newsletter to our community members who are looking to make and save more money, protect their finances and be their own bosses! Finny does not offer investment or stock advice. The Gist is sent twice a week (Tues & Thurs). The editorial team: Austin Payne and Chihee Kim. Today's Movers & Shakers is brought to you by Ashu Singh.

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