The other day I received an e-mail that my brother in-law's advertising agency had recently been listed as one of the BRW fastest growing companies. Out of the top 100 listed he was ranked 31st with an annual growth of 80% which was pretty impressive!
On the way home from work, I started thinking about the notion of the different paths that people might take in life and the impact this has on their financial future.
Everyday the you read inspiring stories of successful entrepreneur's making their fortunes with the success of their business. A lot of these stories follow the well trodden idea of going from dead broke to wild riches. There is a certain romance about this notion and idea that fortunes and riches are available to everybody.
Everyday we read the paper about wars, deaths and other catastrophic events. Yet there is never a large amount of news of business failures. I find this is particularly surprising given that 90% of new business will likely fail. If they managed to reach 5 years of operation then there still is a 60% failure rate that the business won't make it. As such, one would think there is endless sources of miserable news which one could report on each day.
I think today with business there is a lot of parallels to the gold rush error in the late 1800's. Everybody heard about the riches which people were achieving, but in reality few were fulfilling the dream and instead living in very difficult financial positions.
I recently watched an interview with Elon Musk the founder of Tesla, Space X, Solar City etc etc. He spoke about critical thinking, about the probability of success, and being real with your answer. I think when it comes to a new business idea, or even a new investment, this notion holds a lot of truth.
This can also be particularly important when one might be thinking about a company which is just about to list on the stock exchange otherwise known as an IPO. These days there are no shortage of IPO listings globally and the companies range from business ideas, early growth phases, right through to established organisation seeking money to expand. All of them have a well crafted PR strategy attempting to create as much hype as possibly to achieve the best possible price for the seller.
Warren Buffett, a famous investor, has in the past recommended avoiding IPOs for the following reason: "It's almost mathematically impossible to image that, out of the thousands of things for sale on a given day, the most attractively priced one is the one being sold by a knowledgeable seller (company insiders) to a less knowledgeable buyer (investor).
I can't help being a little skeptical and thinking possibly the same thing with why would anybody want to sell their business at a really cheap price at IPO if it is a marvellous business.
I think when it comes to a business or a paid career, the reality is there is no right or wrong path. Both paths have the chance to be financially rewarding and equally successful.
When it comes to investing however, next time you are looking at the next hot IPO, maybe think if I really like the company should I buy this pre IPO or wait a few weeks or months. You might find that once all the glamour and glitz has vanished and the company becomes old news, you might just find the company trading at a more favourable price.
Like all great ideas, before you look to implement any investment strategy, it is important to speak with a qualified Financial Planner and of course we would recommend AJ Financial Planning! For more information please visit ajfp.com.au or call 03 9077 0277.