IPO frenzy: Planning still key to successful strategy

LIHUE — Benjamin Franklin once wrote, “An investment in knowledge pays the best interest.”

The adage is relevant to individuals who begin investing using online sites and manage their own portfolios with a user name, password and link to their bank accounts. Professional advice is often sacrificed, perhaps to save money, or from the blissful confidence of ignorance — and luck.

The excitement generated by initial public offerings (IPOs) of popular tech stocks provides an air of gold fever. The frenzy of optimism prior to the release of Facebook and Twitter, to GoPro and this week’s Alibaba, provide high hopes for both the short- and long-term investors.

Alibaba is hyped as one of the biggest IPOs ever as China’s biggest online shopping hub. But other than reading all the online hype, has anyone bothered to ask a wealth management professional at a brokerage?

The climate has changed and despite Facebook’s sound financials, its ascendance has been modest. Twitter darted out of the gate only to collapse from a controlled climb until its over-valued level fell back to Earth. There is no crystal ball but there is good planning.

Eric Fujimoto, a private wealth adviser with Ameriprise Financial based in Honolulu, said that when looking back at the IPOs of big-name companies like Google, Amazon and Facebook, most often, it was not a straight lineup. It is common to see significant volatility with these types of investments.

“The wealth for any investor is made by understanding market volatility, business risk, and deciding if a long-term hold strategy is appropriate,” Fujimoto said. “A financial advisor can help you navigate these areas and make investment decisions suited to your specific needs and goals.”

In terms of what people should take into account when considering whether to invest in an IPO, Fujimoto said he tells everyone to create a financial plan. This should be based on their financial goals, risk tolerance and time horizon.

“Understand which dollars are goal-based and which dollars are ‘free and clear’,” Fujimoto said. “Only the dollars that are not allocated for other purposes should be placed into the volatile investment arena of IPOs.”

The previous tech stocks give evidence to that sense of hope. Who wouldn’t regret not dumping a thousand dollars into Apple, Amazon, eBay or Google stock back at their IPO dates? Think of what a hundred shares would be worth today. But then, what if you had dumped money in the giant tech upstarts of the 1990s that didn’t survive the dot.com bust? Others failed because they didn’t have a vision or were managed badly and we don’t remember their names.

IPOs are popular with brokers as the selling price is announced and they often get better that normal commissions, said Charlese “Chick” Lanphier, president of Lanphier Capital Management in Princeville.

“IPOs aren’t all bad, and some are priced well,” he said. “Some go through the roof and there are some giveaways.”

Lanphier is a money manager with a niche in bonds and is not a stock broker. One difference from stocks, he said, is that money manager fees are based on asset percentages, while stock brokers gets the same commission whether the price is up or down, or you are buying or selling.

“Wall Street hates patience,” Lanphier said. “It doesn’t generate commissions.”

Financial planning is more like life insurance. It may take a long time to make money but it should eventually produce a fountain of profit.

“It is a marvelous industry that makes a lot of people a lot of money,” he said.

People who do well are usually engaged in business or investing. The people who lose are more often greedy than unfortunate. It is better to know what is doing well more than it is about good prospecting.

If a broker doesn’t take enough risks, or takes too many, then his clients pull their underperforming accounts.

The ability to research and to stick with an investment and keep patient is key, Lanphier said. Good companies look to the future without getting greedy. They take the money they earn and put it into new things that grow the business.

“It is just common sense,” he said.

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Tom LaVenture, staff writer, can be reached at 245-0424 or by emailing tlaventure@thegardenisland.com.

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