We have decided to start a new fund that focuses on IPO stocks. We will call the fund "The IPO Fund".
We decided to build this fund after studying 10 years of IPO data and came to the following conclusions:
- If we had invested in every stock that we knew about that went public since 2010, we would have outperformed the index (S&P500) by more than 130%.
- If we were more selective and invested in stocks that not only we knew about but we also felt confident about, we would have outperformed the index by more than 360%.
- If we leave Tesla out we would have outperformed the index by 70% by investing into all known stocks and 200% by picking from the known stocks.
We will present our findings in more detail in the future. Make sure to subscribe on fundalytica.com to receive an update.
Moving forward we will use the following strategy for The IPO Fund:
- We will invest $5,000 per stock. IPO stocks are high growth stocks so that amount is enough and will allow us to diversify into more stocks. Plus we will not care much if our pick fails to deliver.
- We will invest into 3-5 stocks per year. Our goal will be three picks per year but if something we feel too confident about shows up and we have already picked our three stocks for the year, we will add up to two more.
- The company should be offering services or tools that help other businesses grow. So we will try to stay away from consumer stocks. Think of Shopify versus Spotify. As of today Shopify is up 3,567% but Spotify is up only 59%.
- We will avoid darling stocks that are too popular and end up being oversubscribed. If we buy at a a very high price our returns could be diminished or even negative. For example Beyond Meat closed 163% up from its IPO price on its first trading day.
- We will hold the stock for a long time with a minimum 5 year horizon unless there is extreme appreciation before that 5 year threshold. In that case we will consider liquidating some of the stock.
- We will liquidate most of the stock in 10 years to use the capital. Ideally we want to keep the initial $5,000 spent invested into the stock to have a continuously growing portfolio of stocks. So if the total value of our stock ends up $100K we will take out $95K.
- We will move profits into other assets and not more IPO stocks. We do not want to be over diversified and pick too many stocks.
For the year 2020 we have made the following picks:
- Unity has created one of the best 3D development platforms that is available today. If you are playing a 3D game, there is a high chance that it was developed using Unity. As the world is moving more into augmented and virtual reality, Unity will be instrumental to bringing AR & VR to the masses. The stock is a bit too popular and we could not buy near the IPO price. But in the long run we are confident that the company will outperform. $5,000 U ✅
- Rackspace is actually having its second IPO, it was called Rackspace Hosting in the past trading under the symbol RAX and it was acquired by Apollo for $32 cash per share. Investors made a profit. Now called Rackspace Technologies it offers a more diverse set of services and not just hosting. We are confident that the company will grow further. $5,000 RXT ✅
- Asana is a collaboration software being led by a great CEO, Dustin Moskovitz. Dustin is one of the co-founders of Facebook. Because of its ties to Silicon Valley we are confident that Asana in the long run will grow its user base and revenue. Many businesses are currently using Asana as their project management software. $5,000 ASAN ✅
The IPO Fund value currently stands at $15,000
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✏️ Written by Fotios Dotcom for Fundalytica
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