You might be thinking … “Duh! Of course I’m only going to invest in profitable companies”. Yet surprisingly, there is a frenzy for buying ‘profitless’ companies.
How to lose 40% of your investment in 6 weeks!
Let’s look in the USA Technology Sector. The Initial Public Offering (IPO) of Uber competitor, Lyft in March 2019. Their share price hit a high of US$88 valuing the company at over US$26 billion. Six weeks later it was US$53 – a whopping 40% loss. Notably, Lyft has never made a profit. Last year it reported losses of about US$800 million.
Uber is listing in the USA on Friday 10 May 2019. Once again, people are scrambling to get involved and the offering is over-subscribed. Uber is a familiar name. Many people who buy into this will do so just because its a familiar name – their kids use it, they use it and so they will think Uber must be doing well. When in fact, Uber has never made a profit yet is currently valued at over $90 billion. Last year it reported losses of about $3 billion.
In the Australian market, Afterpay is in the same category – it hasn’t made a profit yet either. It is currently valued at over $6 billion.
Give yourself a chance & decrease risks – buy profitable companies.
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