John & Bill are (were) getting closer to the SOE asset sales by way of new share issues. These are commonly referred to as initial public offerings or IPO’s. The first SOE IPO sale of Mighty River is due to proceed in September (not withstanding Maori claims over the water ownership).
The share broking and banking community are getting excited as they are looking at scooping up tens of millions in commissions and fees. They will tell you they are a good idea – good for their pockets, but are they good for you?
However both rose nicely over 2 years or so. AIA has continued to be sound, but CEN has sagged by 20% recently. The recent Trademe IPO was a success, and the Facebook IPO was a disaster.
Let’s look past the hype and have a look at US experience of IPO’s. The total return for 333 IPO’s in the USA for 2010 and 2011 was -11.1%. Yes, that is a minus ! So put the hype aside and ensure your investment decision is based on a strategy. Ask yourself some questions:
- am I serious about building a diversified invesment portfolio, or is this just a flutter ?
- a flutter may be OK but only if it is a tiny part of your overall assets/money
- if you are serious, ensure you are well diversified across bonds, property and shares, both on and offshore
- if you already have a lot of assets in NZ, would you be better to ignore these issues ?
- do you have a low risk emergency fund in place ? That should come first and foremost
- once you have a low risk emergency fund set up, your next priority is to pay off your mortgage (if you have one)
- do you have time to wait till the shares perform ? Many can take years to realise their full value
- all investment decisions should be based on a process or startegy if you are to succeed – do you have one ?