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Near-Record Proportion of IPOs Losing Money Is Sign of Trouble for Stock Market

Near-Record Proportion of IPOs Losing Money Is Sign of Trouble for Stock Market. As the chart below shows the proportion of Initial Public Offerings going public with losses remains close to a record high (see chart) of around 70% vs. less than 40% in normal times. As as result, that historically is a clear danger sign for the stock market. Over-priced IPOs usually occur toward the end of a long bull run when stocks in general become very overpriced.  Just look at the record number of money-losing IPOs at the peak of the 2000 dot.com bubble that turned into a major market crash. Why does this happen? Generally because investors have lost their sense of reality.  They are willing to buy stocks on hyped stories instead of the facts. Put another way, investment bankers are willing to stuff the market with over-priced stocks of little value as longer as the public is willing to buy them. There’s an old expression on Wall Street, “When the pigs squeal feed them.”

Near-Record Proportion of IPOs Losing Money Is Sign of Trouble for Stock Market
Near-Record Proportion of IPOs Losing Money Is Sign of Trouble for Stock Market

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Brad Lamensdorf

Brad Lamensdorf, the founder and portfolio manager of Active Alts, is a principal and co-manager of the AdvisorShares Ranger Equity Bear ETF. He previously managed a long-short investment partnership from 1998-2005 under the name Tarpon Capital Management. Earlier in his career Mr. Lamensdorf was an equity trader/market strategist for the Bass Brothers’ trading arm. He managed a short only portfolio in addition to co-managing a $1bil hedging program. He also served as in-house market strategist for the entire internal and external network of Bass Brothers money managers.

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