1 Answers: Is it smart to invest into fast growing companies like Airbnb right when they go public?

Question

It certainly can be a profitable investment, but you can also lose money. When a hot, well known company goes public for the first time everyone wants their piece of the action, and the stock price often soars, then plummets in a series of wild swings. A lot of people make a lot of money very quickly and a lot of people lose a lot of money very quickly on those swings.

Once that settles down, the stock price will reflect investor’s overall confidence in the company and everyone’s opinion of how well that company is going to do in coming months & years. If a company is viewed as a can’t miss sure thing, then the price will be high & stable. It will cost a lot of money to buy a few shares for slow & steady growth. There’s nothing magical about it, and there’s no free lunch to be had because there are millions of other people who would want in if there was a guaranteed profit to be made.

No company is immune to hard times. Remember when MySpace revolutionized the internet and basically invented the concept of using a personal page to stay in touch with friends? Yeah, they’re bankrupt and the site has been completely shut down. Kodak was the biggest name in the film & camera industry in the 1980’s but they failed to keep up with digital technology and now they’re an afterthought. Sears was one of the biggest and most profitable retail companies for like 100 years, but they didn’t adapt to internet shopping and now they’ve declared bankruptcy, they’ve sold their most profitable product line (Craftsman) to Lowes and they’re closing a huge number of their stores. Depending how the bankruptcy process goes, they may shut down and completely cease to exist.

So no, there is no such thing as a sure bet in the investing world. Its entirely possible for AirBnB (or any other seemingly robust start up) to go under if they don’t keep up with changes in the market and competition.

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Anonymous 6 months 1 Answer 47 views 0

Answer ( 1 )

  1. It can be. But if you look at SNAP for example which is the trading name for SnapChat they are way down from their IPO launching price and look like they are going to stay down for a long time.

    They may never trade at what they first released at. So in this case it was not a good idea.

    However whenever you invest in anything you have to consider why you are doing so. For example if you buy in to the IPO and unload quickly afterwards you can likely make a good profit on a growth like trade.

    But if you are doing value investing then you need to consider longterm if this stock is going to grow. And then you can realize some major capital gains! Like buying into Amazon early on.

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