Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific stock market advice that will help you develop a successful approach to investing. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away.
Today’s tip: “There is an element of chance in the success of every business, and it’s rarely worthwhile to test your luck by investing in new issues.”
John D. Rockefeller, founder of the Standard Oil Trust, was one of the richest men in 19th century America. A reporter once asked the secret of business success. John said there were three of them:
Get up early;
Work hard and long;
Above all, be sure to strike oil.
He wasn’t entirely joking. There’s an element of chance in the success or failure of every business, especially when it’s just starting out. This fact has a continuing impact in our approach to investing.
It’s one key reason why we generally stay out of new issues. They tend to be riskier than investors realize, because it’s easy to overlook Rockefeller’s third requirement for success. Of course, new issues also tend to be risky due to what you might call “the selection process”. You can only invest in new issues that come to market. They only come to market when it’s a good time for insiders and the company itself to sell, but that may not be (and often isn’t) a good time for you to buy.
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Facebook’s new issue demonstrates danger of exaggerated expectations
One of the problems with a number of new issues is the excessive hype they receive from what we call the “broker/media limelight.” This causes expectations to be raised to often unrealistic heights—and the fall from those heights can be brutal.
This spring’s IPO by Facebook (symbol FB on Nasdaq) was a classic case of exaggerated expectations turning sour. I advised against buying the stock a week ahead of the new issue (here are my views expressed on YouTube: view the video here). Other well-publicized web-based IPOs have run into similar troubles, such as Groupon (symbol GRPN on Nasdaq), whose shares have lost over 60% of their value since last November’s new issue.
This is why we advise investing mainly in well-established companies. They can go broke, just like start-ups. But it happens much less often, and takes a lot longer. If you invest in well-established companies, you’ll have far fewer portfolio disasters, and those you can’t avoid will mostly be partial rather than total.
This element of chance also explains why we feel so strongly that you should spread your money out across most if not all of the five main economic sectors. The element of risk in the success or failure of every business is partly due to internal factors, particularly management failings. But it also comes from external factors like rising interest rates, trade disagreements or falling product or commodity prices.
If you spread your funds out across the five sectors, you limit your exposure to any one external factor. Then too, outside influences that hurt some of your stocks may help others.
COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members
Most investors find that it’s hard if not impossible to get an allotment of a “hot new issue” that soars after it comes on the market. On the other hand, it’s all too easy to buy the new stock issues that plunge after coming on the market. Has this matched your experience with new stock issues?
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We do not collect or disclose personal information, except when it is provided to us voluntarily by the site/store visitor with their consent.
We store subscriber and password files containing personal information securely. These files are stored in secure areas that are not accessible to the general public. We are always working to ensure the security of your personal information.
What personal information do we collect?
The information we receive from customers helps us personalize and continually improve your online experience at TSI Network. TSI Network may collect personal information online for all legal purposes, which include, but are not limited to:
Information You Give Us: We receive and store any information you enter on our website or give us in any other way through sign-up forms or ordering forms for publications and services. You can choose not to provide certain information, but then you might not be able to take advantage of many of our services and features. We use the information that you provide for such purposes as responding to your requests, customizing your web browsing experience for you, improving our website, and communicating with you.
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Information from Other Sources: For reasons such as improving personalization of our service (for example, providing better product recommendations or special offers that we think will interest you), we might receive information about you from other sources and add it to our account information. We also sometimes receive updated delivery and address information from our shippers or other sources so that we can correct our records and deliver your next purchase or communication more easily.
We do reserve the right, however, to collect and perform statistical analyses of the internet traffic to our website for our internal use. However, information collected does not allow us to identify any individual, and will not collect any personal information of the visitor. Furthermore, we do not sell, rent or loan to any outside parties the information collected and analyzed.
Although you may be able to access some of our websites without being required to register or provide personal information, certain websites and sections of our websites may require registration. In addition, if you choose to contact us to ask a question, we will collect your personal information so that we can respond to your question.
To make the visitor’s experience on our website easier, we may use per-session “cookies” (session identifiers) to track the state of the visitor session. This “cookie” is destroyed when your session with our website is over.
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Does TSI Network Use the Information It Receives?
"Contact Us" and Comment Features: TSI Network encourages visitors to its websites to contact us with questions and comments. Email addresses and other information of persons using these features may be collected in order to facilitate our responses to those inquiries.
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Except as provided herein, TSI Network will not sell or rent personal information about you to unaffiliated third parties.
We may disclose personal information you have provided through our websites, for the above purposes, to persons or companies that we retain to carry out and other activities for which you have registered or in which you have otherwise asked to participate. In particular, we may for these purposes transfer information to any country (including the USA and other countries which may not offer the same level of data protection as Canada). We also will disclose personal information if required by law, including compliance with warrants, subpoenas or other legal processes.
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TSI Network does everything possible to prevent unauthorized intrusion to its websites and the alteration, acquisition or misuse of personal information by unauthorized persons. Notably passwords submitted by users of our websites are encrypted using encryption mechanisms. However, TSI Network cautions visitors to its websites that no network, including the Internet, is entirely secure. Accordingly, we cannot be responsible for loss, corruption or unauthorized acquisition of personal information provided to our websites, or for any damages resulting from such loss, corruption or unauthorized acquisition.
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If you wish to request access to, or correction of, your personal information in our custody or control, or find out how we've used or disclosed that information, please make your request in writing to us. We may need to verify your identity before searching for or providing you with personal information. In some circumstances, we may not be able to provide access to your personal information, for example if it contains the personal information of other persons, if it constitutes confidential commercial information, or if it is protected by solicitor-client privilege. If we deny your request for access to, or refuse a request to correct, your personal information, we will advise you of the reasons for this refusal.
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As discussed, you can always choose not to provide information even though it might be needed to make a purchase or to take advantage of TSI Network features.
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Changes to this Policy
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TSI Network may revise this Policy from time to time.
Legal Notices and Disclaimers
The contents of this web site and our publications are based upon sources of information believed to be reliable, but no warranty or representation, expressed or implied, is given as to their accuracy or completeness. Any opinion reflects the Successful Investor’s judgment at the date of publication and neither the Successful Investor, nor any of its affiliated companies, nor any of their officers, directors or employees, accepts any responsibility in respect of the information or recommendations contained in the publications or on this web site. Moreover, the information or recommendations are subject to change without notice.
Information presented on this web site or contained in our publications is not an offer, nor a solicitation, to buy or sell any securities referred to on the web site or in the publications. The material is general information intended for recipients who understand the risks associated with an investment in any securities referred to in the publications or on this web site. The Successful Investor has made no determination regarding whether an investment, course of action, or associated risks are suitable for the recipient.
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