Priced for Perfection
Priced for Perfection
The Renaissance U.S. IPO Index, which measures the performance of companies that have recently gone through an initial public offering (IPO), has fallen over 26% from its 2021 high. In comparison, the S&P 500, an index of large and well-established U.S. companies, has fallen by less than 2% from its 2021 high. What has driven the disparity between the two baskets of stocks? For one, expectations for IPOs are typically very high. The companies that go public through an IPO often have innovative and potentially disruptive technologies and tend to attract investors who expect and demand hyper-growth for many years. A high percentage of newly public companies fail to meet the lofty expectations set by investors, increasing the risk of a severe drawdown. Making matters worse are the high valuations of recent IPOs. Companies are increasingly staying private for much longer than in previous cycles, only choosing to go public when conditions allow them to secure the highest price possible. As recent price performance shows, the combination of rich valuations and unrealistic expectations can lead to painful and volatile share price deterioration. At First Fiduciary, we strive to invest in attractively priced, high-quality companies with realistic expectations backed by years of success. Our focus on downside protection has allowed our clients to generate investment returns without undertaking excess risk.
Articles we Liked
Extinct Foods
Culinary detectives are working to recreate an Ancient Roman sauce long thought to be extinct.
Climate-proof Beach
How much money should be spent to fight a likely losing battle to save this country’s popular beaches?
Workers Quitting in Droves
One positive to come from the global pandemic is the wave of entrepreneurship it has spawned, as hundreds of thousands of Americans strike out on their own.
Social Distan-sting
Just as humans avoid handshakes and hugs, honeybees, too, avoid each other amid plagues.
Zillow
The Wall Street Journal tries to figure out what went wrong with Zillow’s iBuying program, which let a computer algorithm set the price the company would pay for a house.
M.C. Escher
Escher’s particular brand of paradoxical art wasn’t appreciated in the artist’s lifetime (1898-1972), but a new book is trying to change that.
Notable Reads
The Hitchhiker’s Guide to the Galaxy
by Douglas Adams
Seconds before the destruction of earth, a man stows himself away on the alien spaceship responsible for the act, thus beginning his adventure across the universe. While commonly considered one of the best science-fiction novels of all time, The Hitchhiker’s Guide (1979) is much more a fantasy story on par with Alice in Wonderland or The Phantom Tollbooth. Wonderful book full of colorful characters and humor throughout. – AG
Becoming Trader Joe: How I Did Business My Way and Still Beat the Big Guys
by Joe Coulombe with Patty Civalleri
Trader Joe himself (Coulombe) walks through how he started and grew Trader Joe’s into the renowned grocery it is today. He carefully catered each of his stores to his ideal consumer (the “overeducated and underpaid”). Also, to attract the most productive employees and retain them for many years, Joe paid his employees significantly more than the average grocery did, which included an equity stake in the company. His motivated and properly aligned employees became brand ambassadors for Trader Joe’s, helping the company outperform and outgrow other grocery chains. Any Trader Joe’s shopper will enjoy the many amusing tales about the store, its employees, and its culture. On the negative side, the narrative is choppy and jumps around too much, but anyone thinking of starting a retail business will learn a lot from this book. – AG
Talking to Strangers
by Malcolm Gladwell
Gladwell is famous for weaving a narrative around a simple idea with the use of interesting stories. He follows that formula again to discuss our tendency to be too trusting of strangers (what he calls the “default to truth” theory). However, unlike past books, the anecdotes he uses are not amusing or uplifting. From police violence to terrorist interrogations to the Penn State football scandal, he outlines, depressingly, how giving people the benefit of the doubt can seriously backfire. Despite a few interesting examples and Gladwell’s typically good prose, I’m not sure why the book was written. It felt far too dragged out and should have been condensed into an interesting 10-page article instead of a nearly 300-page book. Can’t recommend. – AG
More Than a Trusted Investment Manager
Winding down a successful family business after the sale of the company can have significant tax consequences. We recently assisted a married couple in making these decisions in a tax efficient manner. If you or your family are approaching significant financial milestones, we are ready to help you to make the best choices.
The data contained within this newsletter is for informational purposes only. The information contained herein should not be considered investment, tax or legal advice.
This newsletter contains links to external third party websites that are not affiliated with First Fiduciary Investment Counsel. FFIC does not control or direct the content of the information contained on these websites. Information contained on the third-party website is relevant on the date the newsletter was published but may be changed or revised by the third parties without the knowledge of and/or notice to FFIC.
Statistics and other information have been compiled from various sources. First Fiduciary Investment Counsel believes the facts and information to be accurate and credible but makes no guarantee to the complete accuracy of this information.
Past performance does not guarantee future results. The mention of securities or types of securities in this newsletter should not be considered as an offer to sell or a solicitation to purchase or sell any securities mentioned. Neither First Fiduciary nor the authors hold positions in any of the stocks mentioned unless otherwise stated.
First Fiduciary Investment Counsel, Inc. is a registered investment adviser with the Securities and Exchange Commission. A more detailed description of the company, its management and practices is contained in its firm brochure document, Form ADV, Part 2. A copy of this form may be received by contacting the company at: 6100 Oak Tree Blvd., Suite 185, Cleveland, OH 44131; Phone: 216.643.9100; Email: ffic@firstfiduciary.com.