Adviser-to-client template: Hype or reality? What the astronomical SpaceX IPO means for you

Dear Client,

It’s all over the news: SpaceX is went public on Friday 12 June, at a valuation of approximately $1.8 trillion USD. This means that Elon Musk’s space exploration company has had the largest IPO, or Initial Public Offering, in history.  

But it’s not on its own. In the coming months, IPOs are also expected from Anthropic and OpenAI. Together, these three companies are expected to be worth roughly $3.6 trillion USD. That makes them nearly five times the combined value of the 10 largest US IPOs of all time.

The numbers are astronomical, but crucially, they’re not everything. Yes, these companies are new and exciting. But they’re not underappreciated, and that’s a key aspect to consider in investing.

Expectations vs. reality

When the numbers are this big, it often means that the offering is better for the seller than the buyer. This is particularly true of the initial period. History strongly implies you’ll get a chance to buy at lower prices after the early rush subsides, as noted in the table below.

This is to say that high expectations can often be synonymous with disappointment. It’s not to say that SpaceX, or other companies with high valuations, might not become an attractive investment later. Facebook is one example of this, with a rocky start when it first went public, and then going onto being one of the most profitable stocks of all time. But at the IPO, history suggests that the odds are not in investors’ favour.

Patience is key

It’s another example of why taking a patient and measured approach is perhaps the single most important thing investors can do. While IPOs can whip up the dreaded Fear of Missing Out, FOMO is not enough to stake an investment decision on.

Our investment manager, Morningstar, is keeping a close eye on the offering, evaluating the relationship between price and value to ensure robust portfolios that seize the right opportunities while filtering out market noise. I’ll also ensure to keep you updated if any notable changes are made.

In the meantime, if you have any questions about your portfolio, feel free to reach out – I’m always happy to have a chat.

Signoff

Adviser

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