The mobile payments system, Square, recently announced that their IPO is going to be priced $11 to $13 a share.  Hell, even I might be able to afford some of that.  It is yet another unicorn as the term has come to become the legend for tech companies.  The problem is that the last round of investors were guaranteed a 20% return.  Who is driving these valuations is seeming to look more and more like investors and not their real value.

IPO Valuation

This IPO will be something else to watch because the CEO is also a tech giant leading Twitter at the same time!  I must say I am super impressed that this guy can do this.  If he can pull this off then he is in the ranks of Gates and Jobs as far as legend goes.  The actual valuation is interesting though not just because it is lower than the last round of financing, but it is lower despite the fact that it flies directly against what we have seen over the past 18 months and the valuation that we have seen.  It is lower than what anyone has been thinking.

Is this thinking being driven by the investors themselves to get more stock?  It is trying to set a precedence so that it is showing where tech should really be?  I am old enough to know the last time an adjustment came.  Tech was hurt bad for a bit.  Companies that were right priced did not have any problems.  Is this the right price?

Investor Idiots

Everyone wants to make a buck.  In fact some of these investors are running large investment companies that also are the backbone of our own retirement portfolio.  A lot has been said about some people making way to much money so I cannot speak to everyone, but lets look at this situation.  Consumers like to see a company do well so we watch them and buy their products if they are good.  To a commercial investor, it is their job to have their portfolio deliver returns year after year.  Actually it is even more than that, we are moving so quick now, it is quarter by quarter.  It is a stressful job.

I have a stressful job though, yet I don’t demand a million dollar bonus because I did what I was supposed to do.  So their portfolios are making good money for the company.  This makes that fund look good to retail investors like me so I go ahead and buy into that fund.  Making that fund more and more popular.  This is putting more and more stress on that one fund manager now.  Making him demand more money for what he was doing before.

I am watching these funds monthly to make sure that my retirement is growing the way I want it to.  In a sense, that Investor Idiot that I mentioned in the heading is not the fund manager.  It is us.  WE are the ones that are expecting these huge returns.  It is us that wants to play the market and make these big leaps.  We cheer when we see the market up.  We moan when it is done and say that someones head needs to be given in sacrifice.

Market Results

Overall this has a result of always wanting to show positive results.  The stock market has to do this or the internet headlines will scream that the sky is falling.  Remember, these same news outlets are also on the stock market so they too need to show relevance because their stock price is driven by how well they are received.  So our market results can be somewhat bogus because they are being influenced otherwise.

So we get back to Square one.  Is the pricing correct for the IPO?  I really don’t know and quite honestly don’t care.  What I do care about though is that business people are honest with themselves, their employees and the public.

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