The One Thing You Need To Know About Investing In The Twitter IPO

Moneybox
A blog about business and economics.
Sept. 13 2013 8:56 AM

The One Tip You Need To Invest In The Twitter IPO

174293998
A man looks at Twitter on an iPad.

Photo by Matt Cardy/Getty Images

When a high-profile company like Twitter goes public, there's naturally a lot of interest in whether or not you might want to buy in. And the appeal is clear. Twitter isn't yet a profit engine. But it's achieved a really fundamental role in the global communications infrastructure. And with a user base that's still considerably smaller than Facebook's it has a ton of organic growth potential. Nobody really knows how much revenue per user Twitter can feasibly attract, but people really love the service and it seems to grow more and more embedded in our lives with every passing month. It's easy—very easy—to sketch out scenarios in which the company's current valuation in the $10-$20 billion range end up looking pathetically low in one or five or 10 years.

And if you're not an "accredited investor" with more than $200,000 a year in income or over $1 million in non-housing assets, this is your first and best chance to get in on the ground floor.

Advertisement

But in all seriously, you do not need five tips for investing in IPOs. You need one top for investing in IPOs. The tip is—do not invest in IPOs.

Or at least if you do, do it for the entertainment value. I was in Las Vegas recently and I played some blackjack. I lost a bunch of money. Around me at the table were some other folks and they were losing money, too. And of course the table was in a sea of other tables all full of people losing money. There's nothing wrong with losing money for fun, and if you had some money set aside to play blackjack with but you think it would be more fun to invest in a Twitter IPO then by all means knock yourself out.

But forget about tips. "Always read the prospectus," for example. You know who else is going to read the prospectus? Everyone. The game with stocks isn't to buy companies that have a promising business outlook, it's to buy companies whose outlook is better than the other players in the marketplace realize. Your odds of outsmarting the collective judgment of everyone else who's putting time, money, and effort into assessing this are very low. Perhaps not as low as your odds of winning at blackjack. But as an investment strategy, you shouldn't worry.

This is also why normal people shouldn't worry too much about this JOBS Act "confidential" IPO business. Reduced pre-IPO financial disclosure is a disaster for journalists who are losing access to a bunch of facts and figures that it would be interesting to write stories about. But the idea that this kind of investor protection rule would actually help small investors play in the IPO market is silly is a bit like strapping on a football helmet before driving your car into a cliff. The right answer is just stay out of the damn car.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Culturebox

The Ebola Story

How our minds build narratives out of disaster.

The Budget Disaster That Completely Sabotaged the WHO’s Response to Ebola

PowerPoint Is the Worst, and Now It’s the Latest Way to Hack Into Your Computer

The Shooting Tragedies That Forged Canada’s Gun Politics

A Highly Unscientific Ranking of Crazy-Old German Beers

Education

Welcome to 13th Grade!

Some high schools are offering a fifth year. That’s a great idea.

Culturebox

The Actual World

“Mount Thoreau” and the naming of things in the wilderness.

Want Kids to Delay Sex? Let Planned Parenthood Teach Them Sex Ed.

Would You Trust Walmart to Provide Your Health Care? (You Should.)

  News & Politics
Politics
Oct. 22 2014 9:42 PM Landslide Landrieu Can the Louisiana Democrat use the powers of incumbency to save herself one more time?
  Business
Continuously Operating
Oct. 22 2014 2:38 PM Crack Open an Old One A highly unscientific evaluation of Germany’s oldest breweries.
  Life
Gentleman Scholar
Oct. 22 2014 5:54 PM May I Offer to Sharpen My Friends’ Knives? Or would that be rude?
  Double X
The XX Factor
Oct. 22 2014 4:27 PM Three Ways Your Text Messages Change After You Get Married
  Slate Plus
Tv Club
Oct. 22 2014 5:27 PM The Slate Walking Dead Podcast A spoiler-filled discussion of Episodes 1 and 2.
  Arts
Culturebox
Oct. 22 2014 11:54 PM The Actual World “Mount Thoreau” and the naming of things in the wilderness.
  Technology
Future Tense
Oct. 22 2014 5:33 PM One More Reason Not to Use PowerPoint: It’s The Gateway for a Serious Windows Vulnerability
  Health & Science
Wild Things
Oct. 22 2014 2:42 PM Orcas, Via Drone, for the First Time Ever
  Sports
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.