What the Deliveroo IPO can teach us about investing
Losing money on an investment is painful, says John Stepek, but it can force us to look at our process in a way that making money doesn’t.
The Deliveroo initial public offering (IPO) was meant to be the moment at which London unleashed a tech unicorn to rival those constantly springing up across the Atlantic. Instead it was a dreadful flop. Matthew Lynn looks at three lessons the City could learn from the disappointment in this week's magazine, but for me the key point is his first one – it’s all about the price. It’s heartening to see that even in a market like this, where some people will pay millions of dollars for the non-exclusive right to gaze upon a digital artwork by a hitherto unknown artist, they’ll still turn their noses up at an overpriced takeaway delivery firm. Founder Will Shu can at least comfort himself with the fact that the share price actually rose when full, unrestricted trading began in the shares on Wednesday.
However, that won’t be much consolation for those of his customers who bought in at 390p. It’s highly unlikely that anyone invested their life savings (the maximum investment was £1,000), so most will probably write it off and chalk it up to experience. But it would be a shame to just let this opportunity go. Losing money on an investment is painful, but it can force you to look at your process in a way that making money simply doesn’t. So if you did invest, the question here would be: why did you buy Deliveroo at 390p? Does your rationale still hold? Would you buy more (if you could) at the current price? If not, is there really nowhere more promising that you could invest that £750, say, than leaving it sitting in Deliveroo?
I’m not saying that you should hold or sell either way. But confronting this dilemma head-on in a relatively low-stakes situation like this could be a really useful learning experience, particularly if you’re just starting out as an investor. An under-rated trait of successful investors is an ability to control their emotions and to think clearly even when losing money (or suddenly making a lot of it).
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
That leads us on to the other lesson from Deliveroo – that successful investing in individual equities is hard work. We frequently criticise fund managers here at MoneyWeek – the majority of managers still struggle to beat the market consistently (if at all), partly because they have the added hurdle of earning back their fees on top. Yet there’s a reason they struggle. Free markets with lots of participants are by and large pretty good at valuing things, whether that’s shares, commodities or fancy jewellery. Yes, they’re prone to manic phases (arguably the US market is bubbly right now, though not so the UK market). But overall the wisdom of crowds does a good job of incorporating information that’s publicly available (and some that isn’t) into prices.
In turn, that means you need to do a lot of digging to find individual stocks the market has mis-priced. If you’re not able or willing to do that legwork, it’s absolutely fine to stick with worrying more about asset allocation (how you split your money between equities, bonds, property, cash and gold) and to leave the stock picking to carefully chosen fund managers, or simply find the cheapest index trackers.
If you’d like to learn more, I interviewed Stephen Clapham, analyst and author, on this topic for our podcast this week. Listen here, and get a 30% discount code for his excellent stock picking guide, The Smart Money Method.
John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
-
Revealed: the best funds to buy before the end of the tax year
Looking to add more investments to your portfolio but not sure where to start? We reveal the best funds to buy now as the end of the tax year edges closer.
By Katie Williams Published
-
4 tax tips for the Bank of Mum and Dad before the end of the tax year
Parents and grandparents wishing to gift money in a tax-efficient way need to be aware of the looming 5 April end-of-tax year deadline. Here are our tips to beat the deadline.
By Ruth Emery Published
-
What to consider before investing in small-cap indexes
Small-cap index trackers show why your choice of benchmark can make a large difference to long-term returns
By Cris Sholto Heaton Published
-
Why space investments are the way to go for investors
Space investments will change our world beyond recognition, UK investors should take note
By Merryn Somerset Webb Published
-
Time to tap into Africa’s mobile money boom
Favourable demographics have put Africa on the path to growth when it comes to mobile money and digital banking
By Rupert Hargreaves Published
-
M&S is back in fashion: but how long can this success last?
M&S has exceeded expectations in the past few years, but can it keep up the momentum?
By Rupert Hargreaves Published
-
The end of China’s boom
Like the US, China too got fat on fake money. Now, China's doom is not far away.
By Bill Bonner Published
-
Magic mushrooms — an investment boom or doom?
Investing in these promising medical developments might see you embark on the trip of a lifetime.
By Bruce Packard Published
-
What pension providers don't tell you about your retirement money
Check the small print from your pension provider or risk losing thousands.
By Merryn Somerset Webb Published
-
Should you invest in sector funds?
Sector funds can be a useful way to fine-tune a portfolio or track a theme, but check what the index holds.
By Cris Sholto Heaton Published