Twitter and the fear of missing out

Twitter is planning to hit the boards.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If you wanted a sign that the equities markets have recovered their mojo, you don't have to look much further than the announcement overnight that Twitter, home of the 140 character message, is to list on one of the US stock exchanges.

Twitter, seen as something of a little brother to the much bigger Facebook (Nasdaq: FB), was last valued earlier this year at around US$9 billion, based on private sales of employee shareholdings.

Of course, Facebook's own float (initial public offering, or IPO) in 2012 was far from smooth sailing, with shares being issued at US$38 and falling to a low under $18 less than 4 months later. The first trading day was marred by technical problems at the Nasdaq exchange, which interrupted trading and left investors unsure of their shareholdings for periods at a time.

Show me the money

Now Twitter is planning to hit the boards. It faces similar challenges to Facebook – namely, how can you 'monetise' (to use the vernacular) a popular website. Advertising is the natural answer, while Facebook also has a proprietary currency of sorts that users can apply to games that run on its platform, and has also trialled movie rentals and other revenue-generating options.

Twitter doesn't have the same level of user engagement as Facebook – either in terms of the size of its user base or the amount of time its users spend on the site – but it has become a significant part of both popular culture and news and current affairs.

The service was notably used by anti-government protestors in Iran in 2009 and 2010, and again in the Middle East uprisings in the last two years. Kevin Rudd's 'selfie' of his shaving injury rose to prominence in the recent federal election campaign, and US President Barack Obama's record-setting 'Four more years' tweet after his election win last year arguably signalled the arrival – if any was required – of Twitter as a broad zeitgeist force to be reckoned with.

Popularity isn't profit

As airline investors can tell you, though, popular doesn't necessarily mean profitable. While airline travel has exploded over the past half-century, airline profitability is as elusive as ever. Ditto the automotive industry.

Likewise, a great product doesn't necessarily make for a wonderful IPO. Indeed, past experience has been patchy. Facebook spent more than 12 months trading below its IPO price, and has trailed the US S&P 500 index for all of its life as a public company.

Closer to home, reproductive services company Virtus (ASX: VRT) is up 23% since listing in June this year, while comparison website iSelect (ASX: ISU) is down 11% since its late-June 2013 IPO.

Going a little further back, KFC franchisee and owner of the Sizzler restaurant chain, Collins Food Group (ASX: CKF) listed almost 2 years ago to the day, at $2.50, a level not seen since. Fast forward those 24 months, and the shares are down 31%, while the broader market, as measured by the S&P / ASX 200 has delivered a 20% gain.

And that's just in the industrial company space. There are many, many stories of miners and mining exploration companies that have listed with hopes and plans of making a lot of money – only to go broke or conduct a seemingly-never ending series of capital raisings that severely dilute existing shareholders' interest in the company. Of course, that doesn't dampen the excitement of IPO investors who hope that maybe, just maybe, the next company to list will be exception that proves the rule. If it sounds like the same thinking that attracts people to buy lottery tickets, there's a reason for that… it is.

IPO where angels fear to tread

It's precisely this chequered history that makes The Motley Fool incredibly wary of IPOs. A company that has a history on the ASX – having met reporting standards and having been exposed to full public glare for at least a couple of years – is a relatively known quantity. Contrast that to a business that has been out of the public eye – at least financially – until this point. We don't know how the company has been run or the costs that may have been cut and deals that were done to help improve profits.

Equally, being able to see a company's success or failure through a longer period of time, ideally across an economic cycle, provides a good sense of the resilience of the business. During the late 1990s tech boom, many dot.com companies proved they could attract people to their websites, but only a precious few proved that when the venture capital money dried up, they still had viable business models.

It's understandable that management and investors alike hope they have the next Google, CSL or BHP Billiton on their hands. It's less understandable – given a history of chequered outcomes – that investors are prepared to throw good money after bad.

Twitter is about to go public. Here in Australia, there is a line-up of companies who are either confirmed or rumoured to be on the path to public listing, including Sealink, Nine Entertainment and Dick Smith among others.

Maybe some of all of those IPOs will be wildly successful. History suggests that won't be the case. The Fear of Missing Out is a very human flaw. Faced with the choice of potentially missing out or potentially losing money, our tendency – likely driven by envy – is to choose the latter. We don't want to kick ourselves for missing the Next Big Thing.

Foolish takeaway

We don't know if Warren Buffett suffered from FoMO during the tech boom when he was broadly criticised for missing out, or being 'past it'. Actually, we do know the answer. He refused to indulge in the collective delusion that characterised the late 1990s – a decision that was subsequently vindicated.

When it comes to the fear of missing out, investors would be well advised to follow the lead of the Oracle of Omaha – let someone else take the outsized risks, and do as he does – get rich slowly by making rational decisions and not chasing rainbows.

The Australian Financial Review says "good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit." Get "3 Stocks for the Great Dividend Boom" in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

Scott Phillips is a Motley Fool investment advisor. He owns shares in Berkshire Hathaway. You can follow Scott on Twitter (https://twitter.com/TMFGilla). The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »