Plan your exit before the IPO Lockup expiration occurs
By Kim Gaxiola, CFP®
You’re in startup mode and things can only go up, right? Are you sure?
Of course, you believe in your company’s vision, you wouldn’t work there if you thought it would fail. Your company executives are hired for optimism, leadership and driving the company vision forward. That makes them more likely to talk up the positives at companywide meetings but discuss the potential risks behind closed doors amongst small groups of executives at the top.
Listen, it’s O.K. if you are feeling a little greedy waiting for a higher stock price in order to sell your recent IPO stock. Being greedy doesn’t make you a bad person, it means you are human. We are all prone to this and it’s especially true when it comes to our thoughts about the stock market.
However, just because you are greedy, doesn’t mean you have to let your emotions make the decisions the logical part of your brain should be making. That’s when that dirty little word greed can become harmful. Here are some logical thoughts that should enter your mind when deciding what to do with your recent IPO lockup expiration:
- If you are planning to use the money within 12 months, it should be as liquid and safe as possible. HINT: holding a large position in a single stock is the farthest thing from safe. Do not risk it, if you can’t afford to lose it.
- According to an article by Marketwatch, titled IPOs Are Particularly Risky Right Now, “one of the primary risks faced by IPO investors is that, on average, companies (tech and non-tech) tend to underperform the market during the first five years of public ownership
- There will be a lot of selling pressure on the stock while investors holding very large positions from the pre-IPO days cash out. Downward pressure may create a downward spiral in the stock as patience grows old and the “greed” emotion quickly turns to “fear.” This is also known as panic selling- don’t get caught up in it!
- Understand the opportunity cost you are taking. In an up market, you would be far better off selling the stock and diversifying then taking a chance on a single stock. Read number 2 again, most recent IPO stocks underperform the market. Meaning, there are better places to be.
Where are those better places to be? That’s a conversation for you and your advisor based on your unique plans, goals and risk tolerance. The sooner you have the conversation, the quicker you’ll make decisions to get you on the right path in the most appropriate time. Whatever you do, don’t take investment advice from an anyone on TV. This is too personal of a decision to be taking the advice of some “stock expert” who has no clue of your tolerance for risk or objectives. It is too easy to misinterpret their advice and make the wrong decision at the wrong time. They are also unlikely to take your calls if things go bad.
The time to plan for your exit in your recent IPO is yesterday. If you are engaging in a new relationship with an advisor for this transaction, it will take a few months to understand your needs before an advisor will be able to make some solid customized recommendations for you. Start planning now, there are many ways to unload your recent IPO.
If you are interested in learning more, or would like to have a conversation, contact us at TechGirl Financial. We can be reached at kim@techgirlfinancial.com or at 800.584.3652.