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How to get rich by failing. Lessons from IPOs, WeWork and SoftBank

I was never rich enough to be given shares in an IPO — even though I’m a client of Goldman Sachs, Morgan Stanley, JPMorgan, etc.

But now I’m happy being poor.

Most of this year’s IPOs are under water. That means if I had been allowed to buy shares at the offering price, I’d now be losing boatloads of money.

Take yesterday’s IPO — Peloton Interactive. It was sold at $29 — but then fell and fell,  and closed last night at $25.76, thus:

In the year to June 20, 2017, it had sales of $218 million, but an operating loss of $70.7 million.

By the year to June 30, 2019, it had much higher sales of $915 million, but operating loss had crept up to $202.2 million.

Market cap is now a modest $7.2 billion.

When I was running a business, my brilliant partner Gerry Friesen, kept telling me we needed profits to pay the bills. What a quaint idea!

You’ve been able to get rich by losing more and more. This era may, thankfully, be coming to an end, viz Lyft, Uber, WeWork. Keep reading.

They’re coming out of the woodwork, big-time

This one is unique. You pay ten years of fees — up front.  Hence they start with only 80% of your money to invest. You lose 20% the moment you join the fund! I don’t make this stuff up. Who could?

Always ask about fees.

The world’s most important investor in tech

The company is SoftBank. In 2000 SoftBank put $20 million into Alibaba. That is now worth nearly $119 billion.

But SoftBank also invested in WeWork.

This morning the NYTimes ran a story headlined:

SoftBank Bet Big on Disruptive Companies. Many Have Not Paid Off.

The story has this photo:

The photo’s caption reads:

Mr. Son has outlined a 300-year plan to make SoftBank a leader in artificial intelligence, robotics and other advanced technologies.

To my mind, SoftBank disrupted the valuation of tech startups by insisting on growth at any cost, to heck with the profits. That philosophy has seriously hurt this year’s IPOs, where most are still underwater.

There are signs SoftBank is changing, with Son suggesting that profits might be a good thing.

Read the NYTimes piece. Click here.

Sometimes I worry about Apple

I really wanted to buy an iPhone 11 Pro Max because it had these three nice cameras:

It makes pictures nicer than the new Canon G5X Mark II, which is a successor to the G5X I own and used to carry everywhere — until the iPhone’s cameras just got too good.

So I’m thinking I should buy the new iPhone 11 Pro Max? Even better cameras. Faster processor, etc.

But, wait for this, it has no 5G.

So who cares? Me, for one.

I read today on Seeking Alpha — click here.:

Verizon has turned on its 5G Ultra Wideband service in New York City and two other locations.

The network is live in parts of NYC; Panama City, Fla.; and Boise, Idaho.

That brings the service to parts of 13 cities; Verizon plans to turn on the service in more than 30 cities by year-end.

It offers seven 5G-enabled devices (read cellphones) that can tap the new network. (Not one of them is an Apple iPhone.)

What is wrong with Apple? They expect me to spend $1249 on an iPhone 11Pro Max that will be obsolete the minute I plunk down my $1249.

Has Apple checked its brains out?

I love American innovation.

This is a real product. You can buy it on Amazon for $12. Read the ingredients. They read what you’d find in a kindergarten playdoh class.

Buy yourself a tube. Put it in your guest bathroom and see how your guests from hell react.

Please go see this brilliant play

It’s the story of LBJ and how he sharply escalated the Vietnam War — for all the wrong reasons (as we see now).

What you’ll learn from this play how excruciatingly dumb decisions are made in the White House. That war cost us 58,220 military deaths and as many as 3.5 million civilian deaths in North and South Vietnam.

Now Nike makes sneakers in Vietnam. And it’s a nice place to visit.

Stunningly brilliant actor Brian Cox plays LBJ. Get your tickets here. 

Favorite recent New Yorker cartoons

Rosh Hashanah is Jewish new year

It begins on Sunday night. Please wish your Jewish friends “Shana Tova,” which means Good Year in Hebrew.

My dream house (??)

Business Insider recently ran a story on a $88 million mansion in NYC with a panic room and a saltwater pool has gotten a $26 million price chop over 6 years.

Here are my favorite rooms:

Tech stocks have taken a huge hit in recent days.

Keep an eye on companies like AMZN, OKTA, APPN, ZM. Bottom fish them, soon.

The good news is that non-tech stocks are doing well — like BRKB, CCI, COST, DIS, DNKN, HD, HON, LADR, and ZTS. They’re in our portfolio. See right hand column on my web site.

Some good news: From Joel Ross’ latest Ross Rant newsletter:

New home and existing home sales suddenly took off in August as rates dropped. They were up 18% year  over year. New home sales are up 7% for the month. All of this is very good news for the economy, and for companies related to home improvement. If there is a sustained recovery of home sales, the economy will be more sustainable going forward. There was also a pick up in factory activity. It is forecast that Q4 may be an up quarter. With consumer confidence apparently still strong due to the solid job market, we should go into the holiday season in very strong shape with tariffs deferred. It should be a strong holiday season which should translate into a Q4 GDP growth potentially around 3%.  There is a lot to happen before we know that.

See you Monday, when the year will be new, and better for our stocks (?).

 

  • Michael

    Harry,

    Buy the new iPhone 11 Pro Max 256GB under the Apple iPhone Upgrade Program. For $60.33/mo. it will include Apple Care+. You’ll pay $723.96 for the phone with Apple Care+ over the next 12 months then you’ll be eligible for the upgrade to the newest iPhone. Get an Apple [credit] Card and the monthly payments get 3% cash back. Yes, you get “locked” into the Apple universe, but this works well for an Apple junkie like me.

    Sincerely,
    Michael

  • jpfreemon

    Thoughts on IPOs:
    IPOs are meant to be traded, not owned.
    Never buy an IPO before it has traded 5 days, and then only if it makes a new closing high above the first week’s trading range.
    IPOs are ‘pioneer’ stocks. You go into uncharted territory looking for gold, but you may only get an arrow.