Home Opinion Snapchat IPO: Madness of Crowds

Snapchat IPO: Madness of Crowds

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There is a timeless book written by Charles Mackay called, “Extraordinary Popular Delusions and the Madness of Crowds” .  It goes back to the 1600s when people paid years of salaries for a single tulip bulb, in the hopes of being able to sell that same tulip bulb to someone else for a higher price.  This is also referred to as “The Greater Fool Theory”.  We’ve seen it over and over again in the 90s with the “dot com” bubble, the 2000s with the housing bubble, and now with the “social media” bubble.

Snap is going IPO for around $25B.  This is over 67 times its yearly sales.  Personally, I’d steer clear of this company’s stock.  All the insiders will be selling as soon as their restrictions have ended.  They are selling to you (if you buy).  They will become rich, and the outcome for you is much more uncertain.  It can skyrocket past it’s current price of $25, or it can crater.

Personally, I’ll choose companies that have no hype.  In the end, someone is left paying the expensive bills after the Extraordinary Popular Delusion and the Madness of the Crowd is over.  That someone will not be me.

Snapchat owner’s IPO will be one insanely expensive deal

Source: Snapchat IPO: Should You Buy Snap Stock? | Fortune.com