What you need to know (but don’t) about buying an IPO

An initial public offering of a stock, called an IPO, can be either a sucker’s game or a chance for instant riches. Determining the outcome requires a great deal of work, knowledge, and luck. Most investors have none of the above when it comes to IPOs. I want to share with you a recent conversation I had with a conservative client (a vegetarian and yoga teacher) on this subject. “I want to buy some stock of this company that makes a vegetarian form of hamburgers. How do I do it?” she asked. “Why do you want to buy it?” I asked, before explaining the mechanics of such a purchase. “Well, it tastes really good, all my friends love them, so I’m sure it’s going to be a great stock since more and more people will switch to this healthy choice of food.” What’s wrong with this picture? Number one, her analysis is full of holes. Her first mistake is failing to recognize three crucial differences. A good product does not necessarily translate to healthy corporate profits. Many a company with a good product has failed miserably because they did not have the knowledge, experience and financial acumen to make a go of it as a public company in a competitive marketplace. Number two, it does not necessarily follow that a company with good fundamentals will also perform well in the stock market. There are thousands of cases throughout financial history where companies that IPO never again reach their offering price. And three, if you think it is hard enough to analyze the fundamental valuation and technical position of an...

CBD is a real market

Cannabidiol is popping up all over the country. Local drug stores, supermarkets and health food shops, among other retailers, can’t seem to get enough of this stuff on the shelves. Is this a fad, a fake, or does it have some real health benefits? It’s called CBD, for short, and this oil can be eaten, inhaled, and/or applied to the skin. It is a substance extracted from the flowers and buds of the marijuana and hemp plant. And no, before you ask, you can’t get high from it. Back in the day, (when I had hair to my shoulders, along with my buckskin jacket) I simply smoked marijuana or ate it in cookies. It contained THC. THC, a chemical, attaches to the CB1 receptors in the brain and triggers all those familiar sensations like increased appetite, giddiness, moods swings, etc. Unlike THC, CBD was at first thought to attach to the CB2 receptors, which does not trigger psychoactive sensations. You don’t get a buzz from it, although for someone like me that is no longer important. The FDA allows CBD to be prescribed for epileptic seizure disorders and other ailments, but the research for other uses is till ongoing. Most consumers are using it for things like anti-inflammation and pain, especially for arthritis and injuries. Diabetes and acne are also conditions where CBD is used. Others believe it may have properties to treat Alzheimer’s disease. Whether any of these claims are true, will be borne out in time through research. Given my own arthritis issues, I decided not to wait to try it on my neck problems. It worked....

The business of baseball

Attendance is down, as is viewership, as we head into the 2019 season. Major League Baseball is hoping some rule changes will turn around the decline. Will it be enough, and does it matter anyway? Defenders of the game argue that last season’s declines were to be expected. Television ratings for all sporting events have been declining for years. But TV ratings in the new world of digital streaming are not what they used to be. There just isn’t a good way to capture this new viewership data. However, there is no way of denying that no World Series (the most popular of baseball’s games) has been able to beat the average of 20 million viewers per game that was achieved back in 2010. Last year, viewership of 2018’s opening game was at an all-time low of just 3.6 million viewers. Critics argue that Major League Baseball (MLB) needs to fix the sport in order to boost viewers. A list of criticisms includes “Young people aren’t watching. The games drag on and it’s boring.” After ignoring these criticisms for years, the MLB is finally addressed what they see as the most troublesome issues: the length of games, pace of play and too many strikeouts. The rule changes have included both on-field changes, as well as proposals from the player’s union to improve the competitive balance of the franchises. Some of the suggestions include making the designated hitter universal across both leagues, a rule that would require pitchers to face a minimum of three batters, a 20-second pitch clock, and a reduction in mound visits. There were several more suggestions,...

Europe, the world’s sick sibling

The European Community is beset by worries. Brexit, trade threats, a slowing Chinese economy, and internal politics at home have all conspired to slow growth, employment, and positive sentiment. This year, the EU will be lucky to see 1.5% GDP growth. In fact, the International Monetary Fund reduced their overall forecast this week for global growth largely as a result of poor performance out of Europe. Europe’s power house, Germany, saw its’ growth for 2019 cut by 0.6% because of anemic consumption and weak industrial production data. Italy, one of the problem children of the EU, saw their growth forecasts cut by 0.4 percentage points as a result of weal domestic demand and out of control government borrowing. France did not escape the knife either. Its’ GDP was reduced by 0.1 %, largely due to the continuous, production-stopping street protests. Trade tensions top the list of obstacles afflicting Europe. While most of the news coverage tends to dwell on the slowing economy of China (due to the ongoing trade war), this issue is impacting businesses throughout the world. Automobile tariffs on EU exports, for example, have impacted growth, especially within Germany. Brexit has also cast a dark shadow over Europe. Uncertainty has infected every corner of the 18-natioun union ever since the UK referendum to leave the EU back in June 2016. The unsuccessful exit negotiations, which recently culminated in the British Parliament’s rejection of the terms, brought to naught years of talks between Prime Minster Teresa May and her cabinet and EU negotiators. Since then, both sides are grappling with the next step forward. Some believe another referendum...

The Fed stands tall

Sometimes it takes a while, but financial markets almost always test a new incoming Federal Reserve Bank Chairman. On Wednesday, Jerome Powell faced his test and passed with flying colors. Of course, a glance at the stock market averages at the end of the day on Wednesday, would have the casual observers scratching their heads. As most readers know, the stock market has been declining since October. One of the reasons for the sell-off is the fear that the Federal Reserve Bank’s gradual tightening policies have gone too far. Their continuous interest rate hikes coupled with the selling of $50 billion of U.S. Treasury bonds every month had started to reduce the excess liquidity from the financial markets. Investors fear that these actions will slow the growth of the economy and tip the country into a recession as early as next year. No one is sure that this will happen, although most economists are already ratcheting down our forecasted growth rate to somewhere around 2-2.5% for 2019. That is by no means a recession, simply a slowing of growth, but nonetheless, investors have decided to sell first and see what happens as events unfold. The continued losses in the stock market, after so many years of gains, have driven the level of angst to a point where the markets (and the president) have demanded that the Fed stop tightening—now. The media and Wall Street, coming into Wednesday’s FOMC meeting, were convinced that the Fed would cave-in to their demands and announce a cessation of their tightening policies. Investors wanted him to say no more rate hikes and possibly a...

The origin of Black Friday

As you finish your turkey and prepare to get an early start on Black Friday shopping, you might wonder how shopping became such an integral part of your Thanksgiving holiday. The term has followed a circuitous route through our financial history. Although the term “Black Friday” is a new phenomenon, its origins date back to the late 19th century. The term was first associated with a stock market crash on September 24, 1869. Two speculators, Jay Gould and James Fisk, tried to corner the gold market. This created a boom-and-bust atmosphere in gold prices. That volatility spilled over into stocks. Before it was all said and done, stocks lost 20% of their value, while commodities fell by over 50%. Neither speculator was ever punished for their deeds (sound familiar?) due to political corruption within New York’s Tammany Hall. The term Black Friday, however, was used to describe that period of our financial history for the next century. It wasn’t until 1905 that the day after Thanksgiving had anything to do with shopping. It was in that year that a Canadian department store, Eaton’s, launched the first Thanksgiving Day parade in downtown Toronto. Santa lead the parade in a horse-drawn wagon, while Eaton’s benefited by seeing an uptick in shopping at their store the following day. But it wasn’t until 1924 that Macy’s followed the Canadian lead by announcing their own parade. A similar increase in holiday shoppers convinced Macy’s and soon other retailers across the nation, that Thanksgiving parades were good for business. Retail sales on the Friday after turned out to be so good that the government got...