Ex-Fund Manager: Why I'm Not Buying SpaceX (or any IPO)

SpaceX is about to be the biggest IPO in history, and if you're wondering whether you should get in on the launch, then I get it. But in over a decade as a professional investor, I've never once bought an IPO, and I've never regretted missing one either. So in this video, I'll show you why I'm not buying SpaceX or Anthropic or any of the other big listings on the horizon this year, why I don't think a lot of the funds will be either, and where the smart money is actually going using the tools that I've built to find setups like the one that you can see on your screen right now. So before we give a penny to Elon Musk, we need to first understand the odds because it's hard to know whether you're looking at a potential 10-bagger like Arm Holdings or a flop like Aston Martin, which despite making beautiful cars lost nearly 90 grand on every vehicle it sold last year. Yet most investors still assume that buying IPOs is just easy money, and that if you keep picking them up, eventually one of them will rocket and you'll be set for life. That's the common wisdom, at least. But one man has spent his entire career testing whether that's actually true. His name is Jay Ritter, though on Wall Street he's simply known as Mr. IPO. A finance professor down in Florida, he's tracked practically every American listing since 1975. We're talking thousands of them. And the result was that the average IPO over that period delivered barely half the return of otherwise comparable already listed companies. That's the reward for taking all of that extra risk and sticking with it for 3 years. Now, that research ended before I was even born, so you might be thinking that it's a different world now, James, and what Mr. IPO found in the '80s is probably irrelevant. But from his lecture hall in Florida, Mr. IPO has actually never stopped counting. In fact, he dusted off his Tandy 2000 and updated the numbers just this year, only this time tracking more than 9,000 IPOs and nearly 5 decades of data. And his verdict was that 6 out of 10 IPOs lost money within 3 years of listing. And the typical one, going by the median, lost about 25%. But this isn't your average IPO. We're talking about SpaceX, Musk, the company winning the race to put humans on Mars. Surely this one is completely different and Mr. IPO's numbers simply won't apply. Well, with an expected valuation of almost $2 trillion, it is indeed set to be the biggest debut of all time. And that should give you confidence, but let's take a look at what happened with other record-breaking IPOs. Now, the company that it's taken the crown from is Saudi Aramco, which after much delay, because Wall Street was at odds with the valuation that Saudi Arabia wanted for it, eventually floated in December 2019. But it's massively lagged behind the market ever since, and even lagged behind its sector. Now, you might say that it was unfortunate timing, with the listing coming just weeks before the pandemic unfolded. But there was actually something else at play, and it's part of a much bigger problem that I think SpaceX investors could potentially be walking right into. If you remember the odds we just talked about, there's another reason why they're stacked the way they are. Because here's what's really going on when a deal like this comes to market. You might think that you're getting in at the perfect time, at the ground floor, but just think about who's on the other side of that trade. We're talking about the founders, the early backers, Private equity funds have been in for years. For them, this is the payday they've been waiting for, and these guys aren't selling low, nor would their advisor Goldman Sachs or JP Morgan allow them. They're in on the deal as well. They're selling when they can get the best deal for them, not when there's a special discount for you and me. If the economy slows in the meantime or there's a crisis, they'll just pull the deal. And that's why they call these things IPO windows, because they only open when the weather's good. And it's why record listings just like SpaceX often come at the peak of a cycle. Now we've seen it play out time and time again. In the year 2000 with the then record listing of AT&T Wireless, it debuted just a month before the dot-com bubble burst and the stock never recovered. It eventually actually was taken out a couple of years later at just half of what the public paid. In 2007 with Blackstone, the private equity group raking it in on the subprime and leveraged buyout boom back then, and at the very top of that boom, the smart money decided to then let the public in. And within months, we had the worst financial meltdown since the Great Depression. And in 2021, the next new record, Rivian, heralded as the new Tesla, it floated in November, the exact month by my own indicators that the cycle began to turn over. And what followed was a 90% drawdown. And now the biggest of all time in SpaceX arriving right here with all the talk of bubbles, inflation, and the market at all-time highs. It's not that these companies were necessarily all bad, but they were all sold at the perfect moment for the sellers. So even with the confidence of a record IPO, you're often buying at the top of the market. The pros know this, and they can see you as the exit. And that's what makes it harder for you to make money, because now not only do you have Mr. IPO's odds working against you, but you're also buying at perhaps the riskiest point in the cycle, right at the top. And often for the worst reason of all, which is because everyone else is doing it. Everybody's FOMOing. Now whilst everyone else is piling into the Marquee Deal, chasing this hot shiny latest new thing, the smart money is already rotating elsewhere. Because for them it's not just about getting a better return, it's also about managing risk. So how do you spot where the money is going? The truth is you can't, at least not where you'd normally look, because The pros aren't looking at the same charts that retail investors do. They're watching sentiment, they're watching positioning, flows, all of the things that move before price does, which is what gives them their advantage. And by the time that the consensus catches on, they've already been positioned for weeks. Now, I remember facing this exact problem when I was starting out as a grad. I'd do all the research, look at the fundamentals, technicals, the news, only for the market to then do what seemed completely random. But it's my mentor Lex, who actually ran a hedge fund, who not surprisingly showed me what these guys were really looking at. And the difference between them and me wasn't really intelligence or necessarily skill. It was the screen that was in front of them and the moves that they could see that were otherwise invisible without it. And it was almost annoying when I realized how simple it all was. So when I left to manage my own money, I built my own version of this without the Bloomberg price tag., and I want to show you what it sees right now with a couple of examples. Now, this first dashboard is something that I've built which doesn't rely on price to determine trends that are taking place right now in different industries. So of the 3 at the top, it's actually the metals that I want to draw your attention to. You can see that they've been ranked towards the top now for the last few months, and if you click within this, you can see some example stocks. Nucor, for example, big steel company, and also, as the name suggests, another in Steel Dynamics. On the right-hand side, you've also got the respective ETFs. So there's a steel ETF if you'd rather not look at individual stocks. We'll begin actually with the steel ETF SLX. So this market is at a record high and showing great momentum before the recent correction, and then continued strength thereafter. So that's the steel ETF that contains the two example names which we looked at here. Now of course these are not recommendations, but they can serve as a watchlist, a starting point for your further research. In the case of Steel Dynamics, it's a similar story. This chart to me looks particularly good with it almost trebling off the low of last year. That's gone up a heck of a lot. In 12 months. The other one was Nucor, and this also looks healthy, breaking out to new highs, and that looking like a pretty strong trend. So that's our first signal on the long side. This is where the smart money seems to be rotating into. So just returning to our dashboard and now looking at the laggards, whether you want to play them long-short or you just want to use this as a warning system in terms of what to stay away from, it's up to you. But in this case, it's the wood products, if we scroll down, that is in contraction currently, and it's been in a horrendous trend over 3 months, 6 months, and longer out over 12 months here, as you can see at the bottom. So once again, clicking into the section gives you a shortlist of some suggested examples. So we have a relevant ETF, in this case the Homebuilders, which are heavily reliant on timber for their construction. And then companies like Weyerhaeuser, for example, which I believe is a real estate investment trust that focuses on timber forestry. So if we pull up those, we can have a look at Weyerhaeuser first, WY, and we see relative weakness certainly compared to the steel names we've looked at on the overall market. The other alternative in XHB actually might not be the best way to do this because there is in fact a so-called wood ETF which tracks the sector in a similar way to what we just saw with SLX for steel. If we pull that one up, then this trend looks even weaker, making new lows. So the idea here, in theory, might be to look at SLX for steel against wood for that timber and forestry ETF. And that is how you can spot strong, clear trends so easily, which are being driven by this rotation beneath the surface that retail investors typically are otherwise going to be oblivious to because they don't have access to these kind of dashboards and this kind of information. There is also a heat map on here which maps it out very clearly. Now everything you've just seen is inside Invested Intelligence. That's what I've been working on now for the last 3 or 4 months to get ready, and I've just launched this month. So by the time you see this video, you'll have access to the full set of tools, the system I use to follow the money, and the exact positioning that I'm sharing with my members now each week in there. There'll be a link below where you can try it for 7 days for free if you want to do so. And in the meantime, if you are going to take a punt on SpaceX, then I genuinely hope that it works out for you. But just don't sweat the IPO. Understand that there's two sides to it, that there's always going to be another trade just as I've shown you, and that spotting them is going to become far easier when you have the right tools to follow the money. So watch this video next, which shows you how I spent the last 4 months rebuilding my entire strategy to do this, with a bit of help from Claude.