IFB16: The Market Has Seen the Snapchat Stock Story Before

Welcome to session 16 of the Investing for Beginners podcast. In today’s session, we are going to discuss IPOs and why you shouldn’t invest in them. We are going to use the recent Snapchat stock  IPO as well as their latest earnings reports to help us understand why Snapchat stock is not a good investment at this time, or if it will ever be a good investment.

* Snapchat had a recent IPO, and since then the company has been under siege.
* Yesterday’s earnings report was dismal, included were a drop in revenue as well as customer interactions.
* Buying a stock is risky enough, do you need to incur more risk by investing in an IPO.
* Remember that the ones making money from an IPO are the players, pitchers, team officials.
* Having a checklist to go over when investing is critical
* The Margin of Safety is a must, with a focus on the safety part of it.

Without any extra preamble let’s jump into the podcast and see what Andrew and Dave are cooking up.
Andrew: Yeah, let’s talk about IPOs and the most recent one everyone is talking about, Snapchat, the dirty pick app. A lot of people that I know use it, and it is obviously a very popular among millennials. We’ve mentioned before on the show, and I think it was you, Dave, that how a big percentage of users on Robin Hood had bought Snapchat stock, so we’ve riffed about it and maybe degraded it a little bit just for fun as one of our whipping boys.
But I think it is a good opportunity to look specifically at the numbers and maybe let’s diagnose why it’s it’s tanking like it is. As of today the stocks is down to $18.05, and it’s started up around 27 or 28, and a lot of investors or so-called investors, people that think they are investors, people that bought Snapchat stock have already seen a significant loss, 33%. To make up a 33% loss you are going to have to make, I don’t have the specific numbers here in front of me, but I want to say it’s a 50% gain, or something close to that range.
It’s a tough hill to climb, and when you lose that much money the more money you lose, it’s a higher percentage that you have to earn in the future to make that up. To be an investor, especially a beginning investor and to have a loss like that not only mathematically a terrible proposition but the kind of things that it can do to your confidence as an investor. It’s something that can turn people off and just make them think let’s just forget this whole thing, and I don’t want anything to do with the stock market. And if anything is crippling and troubling for someone’s financial future is to forget or try to ignore the stock market completely.
Dave: Yeah exactly, that’s the scary thing about something that happens with an IPO or a newer company and going public with Snapchat. The analysts that were doing the analysis for the bank that was going to be putting up the money for the IPO recently they admitted that they made some errors in their financial analysis of the company, which should have adjusted what they thought the company should start selling the stock for when it went public. Instead, they left it exactly where it was, and it hurt the investors that got into it.
Like you said a lot of the millennials, the people that were using the app Robin Hood, the majority of those people were millennials and they are getting burned by this. People walk into something like this a little bit unaware, and I’m saying not saying I’m a guru by any stretch of the imagination. But I think that the thing to me that is most disappointing about this is that people were. I don’t want to say mislead, that is maybe not the right word, but they walked into something without knowing what they were walk...