How to Avoid a "Draft Bust" in Your Portfolio

Sports teams constantly worry about the dreaded draft bust — in other words, picking up an athlete who’s ripe with potential, but who fails to live up to expectations. Ryan Leaf, Greg Oden, Tony Mandarich — these are just a few of the most notable draft busts in sports history. The thing is, something similar […] You're receiving this email as part of your subscription to Michael Robinson’s Trend Trader Daily [Unsubscribe](. [Trend Trader Daily] How to Avoid a "Draft Bust" in Your Portfolio November 10, 2023 Sports teams constantly worry about the dreaded draft bust — in other words, picking up an athlete who’s ripe with potential, but who fails to live up to expectations. Ryan Leaf, Greg Oden, Tony Mandarich — these are just a few of the most notable draft busts in sports history. The thing is, something similar can happen on Wall Street. Companies that are seemingly poised to achieve greatness are overhyped, particularly when they’re about to go public. And soon after they reach the spotlight, their business falls apart. As investors, how can we know which ones are worth the hype? Which ones to invest in? Today, I’ll review a few cautionary tales — then I’ll reveal how a single investment can help you avoid the next Wall Street “draft bust.” RIP WeWork Years from now, we’ll look back at one company as one of the biggest busts of all time: WeWork. WeWork emerged in 2010, providing co-working spaces to solo entrepreneurs and small companies, a group of nearly 30 million potential customers. As a private company, WeWork’s reputation and success grew. The company was named to Fast Company’s 50 Most Innovative Companies in 2015. And by 2019, it was raising capital from notable investors like SoftBank at a whopping $47 billion valuation. Then, on October 21, 2021, the company announced its long-awaited Initial Public Offering. Hype surrounding its IPO was massive. Investors raced to scoop up shares. But even then, WeWork’s valuation was $9 billion, substantially less than its peak $47 billion valuation. From there, shares of WeWork fell off a cliff — in fact, they tumbled 96% in one year. By spring 2023, shares were trading for less than a dollar. Then, last month, just two years after going public, WeWork filed for Chapter 11 bankruptcy. Those who invested at its IPO are now faced with a harsh reality. WeWork’s share price at its IPO was around $12. Now those shares are worth next to nothing. This is a reminder that investing when a company first IPOs comes with its own set of risks... Pride Comes Before the Fall You see, it’s not unusual for IPOs to sell off after shares start trading in the open market. We see it happen time and again. For example: - Remitly Global (RELY), a financial-services company, went public in September 2021. At the time of its IPO, shares traded for around $44. But by May 2022, less than a year later, shares traded for about $8. - Gamer Pakistan (GPAK), a company targeting the emerging e-sports market, went public just last month. Amidst fanfare, shares traded for about $1.30. Three weeks later, shares had fallen almost 80%. - And cryptocurrency marketplace Coinbase (COIN) went public in April 2021, and was viewed as a quality way to invest in the crypto craze. At its IPO, shares traded for $342. But by December 2022, shares had dropped by 88%. I understand the temptation to invest in a company as soon as it IPOs. After all, a company going public usually has a lot of hype surrounding it. And there are certainly instances of companies going public, and their share price soaring. The question is, how do you know which companies will continue their rise once they’ve gone public? And which ones will go bust? Even the savviest investors can have trouble picking the right companies. Luckily, there’s an easy way to cash in on IPOs without having to bet on a single company’s fate... Only the Best IPOs The First Trust US Equity Opportunities ETF (FPX) is a fund whose managers say they capture around 85% of the value of all stocks that have gone public over the past four years. FPX does this by investing in roughly 100 of the largest, best-performing recent IPOs. The fund’s holdings are diversified among the tech, industrials, and healthcare sectors. And the result is that FPX usually ends up investing in solid companies at the right time. Take a look at a few of its current holdings: - CrowdStrike (CRWD) is at the forefront of cybersecurity. Co-founded by a cyber-attack investigator from the FBI, this company has created tools that help 44 of the Fortune 100 companies and nine of the 20 largest banks spot and prevent attacks. - Airbnb (ABNB) was once a tiny startup. Now it’s one of the most disruptive companies in the travel industry. Airbnb rentals are preferred by travelers for being cheaper and nicer than most hotels. Last year, the company achieved sales of $8.4 billion. - Duolingo (DUOL) uses an AI-powered chat bot to help people learn foreign languages quickly and naturally. The company’s number of monthly active users has soared from around 40 million in 2021 to more than 74 million today. Avoid the Busts FPX enables you to capture the potential of these companies, and many more, with a single investment. And since the market bottomed out on October 30, this fund is beating the S&P 500’s returns by more than 31%. When it comes to investing in IPOs, it can be easy to get sucked into the hype. But more often than we’d like to admit, that hype can quickly come crashing down, along with the companies themselves. Investing in FPX is a way to get in on the IPO hype — while limiting your risk of investing in Wall Street’s next draft bust. Cheers and Good Investing, [Michael Robinson] Michael Robinson Chief Investment Officer Trend Trader Daily   Copyright © Trend Trader Daily, All rights reserved. You signed up on []( Our mailing address is: Trend Trader Daily 1125 N. Charles Street Baltimore, Maryland 21201 [Update Subscription Preferences]( | [Unsubscribe from this list]( RISK NOTICE: All investing comes with risk. That includes the investments teased in this letter. You should never invest more than you can afford to lose. Please use this research for the purpose that it's intended — as research only. You should consult a professional financial advisor before ever taking a position in any securities you see herein. DISCLAIMERS: The work included in this communication is based on diverse sources including SEC filings, current events, interviews, corporate press releases, and information published on funding platforms, but the views we express and the conclusions we reach are our own. 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