The IPO 10-Bagger Chase

It’s been 20 years since Amazon went public at $18 per share in 1997. The web today is littered with stories about how a small investment at the IPO would have turned us all into millionaires. These stories play on our most basic desires as investors: to have the once-in-a-lifetime shot at getting filthy, stinking rich without effort. “If only!” we cry out. If only we’d gotten in on Amazon or Microsoft or Apple at the right time. If only we’d stuck it out through the insane drawdowns these stocks went through. We’d be rich!

What’s missing from these get-rich-on-IPOs stories is all of the ones that don’t make you rich. Of course, Amazon wasn’t the only company to go public in 1997. Here’s a few that I found via a quick web search.

Metromedia Fiber Network. Backed by billionaire John Kludge, MFN had its sights set on bringing high speed internet to most major urban areas in the country. The company had less than $3 million in revenue in 1997 but high hopes. By 1999 the stock had risen to $42 per share, after splitting THREE TIMES in 1998 and 1999.

Metromedia filed for bankruptcy in 2002.

JD Edwards, a packaged software company, filed a $300M+ IPO in 1997. JDE was one of the first companies to develop a strong Enterprise Resource Planning program that was quickly adopted. The stock priced at $23 per share on 9/24/97. In 2003, after the tech bubble burst, competitor Peoplesoft bought out JD Edwards at $19 per share, at the time nearly a 20% premium over where the stock traded. Not exactly a home run.

On November 4th, 1997, AMF Bowling priced its IPO at $19.50, making it a $263M offering. AMF was the source and target of constant buyouts, sales, restructurings and conglomerates. By 2000 this company that was valued over $1B at the time of its IPO was delisted from the NYSE and moved to OTC trading as the stock fell to $1.

In 2001 AMF Bowling, sitting on over $1.3B in debt, filed for bankruptcy.

Here’s the thing: capitalism is hard. Business is competitive. Growing a large, scaled, public business is risky. Buying stocks in a single company is risky. Sure, if you throw some money at an IPO (and you can ride it through several near-failures), there’s a chance it will end up as the next Amazon. There’s an even better chance it will fail, end up in bankruptcy or be saved at the brink after huge losses by a bigger rival picking up scraps. Do yourself a favor: let go of the notion that you’re going to find the next Amazon. It is not doing you any good to read these stories. Quit it, and get back to the real work of building your financial future.

 

 

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