So my pretties…. would you like to slam $10K on your credit card in a single click? I have just the thing. Loyal3 is an online stock purchasing program that allows you to purchase stocks with a credit card. And they are allowing $10K purchases on their latest bargain…the GoPro IPO. Loyal3 allows customers to buy stocks from a selection that they work with, or access certain IPOs.
You can view the basket of stocks that Loyal3 offers in my review of the company here , it isn’t comprehensive, but there are some decent ones. I personally am dripping $50 per month each into Berkshire Hathaway and Apple. The platform has no trading fees, and uses a batch trading system to keep costs low. For a while, Loyal3 officially allowed much larger transactions, but now they have reduced the monthly purchase to $50 max per stock.
What’s an IPO?
An IPO is the Initial Public Offering of a company, when it first gets listed on the market. It is an incredibly volatile time for an investment, but people jump onboard in the hope to ‘find the next Google’ (but not the next Facebook….)
Sadly, IPO investing is not restricted to accredited investors, and therefore businesses are trying to find more ways to make it accessible to dumb money. That’s how an IPO works in case you haven’t figured it out.. you build a company, sell some shares on the way through venture capital seeding rounds, then everyone cashes out when the dumb money comes along. Don’t have the cash? Don’t worry about it, Loyal3 will build a platform for you to buy these on your Credit Card…
But it’s GoPRO and they ROCK!!!
Yeah, I get it, they make awesome things that you can Velcro to your Codpiece and take great POV shots from, but that’s not the point when it comes to buying a stock. Sure, I see the wisdom in buying into a company that you respect and understand, but the disconnect that ‘fan buyers’ make is that they have no sense of value when it comes to pricing.
For example, say you love GoPRO, and never leave home without one… you gotta buy it. I set the price at $23 per share, reasonable, plenty of upside – should be worth $100 at least dude.
The pricing is a very complex thing, it involves taking the previous years growth, multiplying by forward expectations, add in future sales channels, the eye of a newt, and the current cost of Saudi oil… Take that number and triple it.
Then divide the number by shares issued, and make sure the final price is somewhere between $18-32 – that’s an IPO pricing.
Don’t ask about P/E or price to book- ha! These don’t matter in IPOs…
You shouldn’t as about the float, and how much is the reserve? This IPO is releasing 17,800,000 shares at a price between $21-24 per share. However, the company itself has 125,745,946 in Class A and B shares outstanding as of this IPO, and within 181 days of the IPO they will be eligible for release to the market. It’s worth considering that the IPO allows you the chance to buy into 10% of the float, but there is another 90% ready to flood the market within 6 months. You can check that out on page 151 of their prospectus.
Note that it isn’t unusual for an IPO to release in phases like this, and it will harm your share price. The logic here is that price increases when demand is higher than supply, but when supply increases (especially 10x) then your single stock has less appeal in the supply/demand curve.
In it for a quick scalp?
I was chatting about this in the forum and it seems folk think they can swoop in for a quick trade and get out again at a profit. While I can see the value in not holding the shares 181 days from IPO when the market could (but might not necessarily) flood with additional shares, I also wonder about people who think they can make a quick killing. If you are buying stock on a credit card, thinking that you will get in before the dumb money does… I have to advise you to look to your left, and then look to the right, and if you don’t see a sucker there then it is likely to be you.
It’s NOT manufactured spend
So many people seem to confuse what Manufactured Spend is. For a quick and simple explanation:
Manufactured Spend is a way to rack up an expense without value fluctuation. It can have other risks, such as Loss Risk, Fraud Risk, lock up cash flow Risk etc, but it doesn’t lose money. The reason is that we do this to make a profit from the transaction, typically below 5% (sometimes more with some stacking). If the underlying price is unstable then we cannot engage in the trade effectively. Sure we can still do it, but that is what dumb money does, takes risks when the reward isn’t certain.
- IPOs are not Manufactured Spend opportunities.
- Stock buying is not a Manufactured Spend Opportunity
- Gift card buying is not a Manufactured Spend Opportunity
Did the last one confuse you?
Gift card buying is not manufactured spend. Only when you have a resale or liquidation path is it manufactured spend. And only when the exit price is controlled. You have to understand the distinction.
So…. sure, GoPRO IPO is here, you can buy in with a Credit Card, you could earn some credit card points, but for your own best interests please ask yourself why Loyal3 is allowing you to buy $10K on a credit card. If you can afford to lose 100% of the investment then by all means go for it, but be very sure you are ready for that. And remember, Loyal3 sells in a batch at Noon, so if the stock starts nosediving you will be there with the rest of the chumps taking whatever price they will offer you at that time, no limits, no stops.
From someone who works in Wall St, no company would ever flood the market with 90% of their shares at once. The bankers who work with them would warn them that no one would buy the follow on offering if that happened so it self corrects to something manageable. But your point is still valid about there being risk though not for the exact reason you highlighted. The bigger reasons are that the stock was overpriced to begin with or the company has bad financial results.
Additionally the stock sales take about 3 days to settle s depending on the logistics of using this broker, you have some market risk even if you try to flip as soon as possible.
Absolutely – they wouldn’t flood it for exactly this reason, but it is important to note that they can, and are controlling the flow in order to add to the current release on their own schedule, and it is something to be mindful of.
I agree about being overpriced too, I was going to go there but decided to not go too deeply into the analysis as it is a ‘growth’ stock apparently, and these things should be valued with normal valuations (read oh shit run for the hills)
Thanks for the insights. Regard the 3 day settlement – I thought that the price couldn’t change once transacted, is that incorrect?
You buy on Day 0 at say $50. You don’t actually own it until Day 3 but the buy price is locked in. To avoid freeriding, brokerages will not alow you to sell until Day 3 when the price may have dropped to $30 or gone up to $60. With IPOs theres a stronger likelihood of volatility. Good brokerage firms will give you credit to cover these types of deals but unsure of how this one operates. Look up Freeriding or Regulation T for more info.
As for the point of the lockup period and additional shares hitting the market. That’s true of any public company, not just IPOs.
I know you’re not a fan of Loyal3 for MS purposes, though while the $2500 limit was still around I was able to spend above $20k through loyal3 and pull out a decent return.
I made nearly 2% profit (as opposed to the usual 1% loss for GCs or VR) on the stocks I bought strictly for MS purposes (ie. buy and sell right away), and on top of that I raked 220k points from sign up bonuses and regular spend. Those points are worth about another 13.7% (1.25cpp) to 15% (1.5cpp). Not such a terrible way to MS after all.
I posted some more info on reddit here-
http://www.reddit.com/r/churning/comments/25ls1n/in_memory_of_loyal3_heres_my_scorecard_we_hardly/
I love your analytical take on the whole credit card “game”. Thanks for putting things in a straightforward and unemotional manner.
Nice take; I for one haven’t really seen the attractiveness of Loyal3; I do keep meaning to buy some Berkshire Hathaway B, but other than that, it seems like a lot of risk, and more paperwork than the hassle… But of course, I’m still not maxed out on my Roth IRA for the year (which I’d argue, should be folks’ primary investment / savings goal after paying off non-home-owner debt).
Still though, it is interesting that Loyal3 is opening the door for more to participate in the madness that is an IPO.
I’m all about some manufactured spend but this seems way too risky even for me! I’ve read about Loyal3 many times before, looked into it further and then just stepped way back. Investing in an IPO is like gambling (perhaps with an educated guess but still) and should be left to professionals in the money management business rather than being promoted as a manufactured spending technique. You might as well be telling someone to load a bunch of money on a poker site… What do you think? Contact me at http://www.tipsforfreetrips.com.