Life was cruel for a has-been Bollywood starlet. Her days were numbered. Add to the misery was marriage to a benami NRI businessman who was down to producing/directing trash short films. Now, meet a couple posing to be early-stage investors on a popular TV channel who are supposedly blessed with business acumen and foresight and are in tight with a few VCs. Together with the starlet, they plan a heist.

In a country riding an economic and stock market boom amidst global ruins, IPOs are the present-day Eldorado. Retail investors rush in to scoop up the diamonds from the floor.

Retail IPO hunters are unknowing speculators in the guise of being investors. These ‘investors’ are unaware or turn a blind eye to the science of stock picking.

Let’s look at a few recent IPOs in India. Nykaa, Paytm, Zomato are all tech-based unicorns with visible founders. These companies lost their valuations by 50% to 70% in quick time after the IPO. But more importantly the founders and pre-IPO investors have sold major portions of their holdings using the IPO at phenomenal valuations. These founders, early-stage investors and the underwriting bankers are the beneficiaries at the cost of retail ‘investors’. Complicit in this game are a few mutual funds who invest in these IPOs to support their colleagues in the investment banking fraternity. Even so, let’s look at the present situation of just one of the IPOs share value as an example. Nykaa has slid by 60% yet is valued at a whooping 1000 times with no profits in sight.

An IPO in the offing, Mamaearth, is valued at Rs.24,000 cr for the IPO by the company’s early-stage investor, Sequoia Capital. The game is simple. A bunch of celebrities come together to form a company. Their model is straightforward – for eg. invest Rs.100- and push the valuation up to Rs.1000 in a year or so. How do they do this? They get investors at various pre-IPO stages to drive up the valuations. Then one of their own early-stage investors works out the valuation of the company for the IPO to create a huge bubble. In this case it is Sequoia Capital. To assist in managing and assuring full subscription in the IPO are the bankers. They charge between 3% to 5% of the subscription amount. The hugely inflated values are then dumped on to the retail investors. It is a space littered with huge established corporations like Hindustan Unilever, ITC, Godrej whose valuations are less than 66 times while Mamaearth is valued at over 1000 times.

The short of it all….IPOs are not for retail investors. The wealthiest investors around the world avoided IPOs. Instead, they bought a Rs.10- stock for Rs.100- at a later date after studying various aspects associated with stock picking and then on to make a fortune.

If you are new to investing and don’t understand the difference between fundamental value and market price, IPOs are not for you.

Speculation can be fun. But investing is not supposed to be fun. It is hardly good conversation fodder. You are not going to boast to friends and neighbours about your investment in a mutual fund or a systematic investment plan (SIP). It is unsexy yet very effective step to take decisions like asset allocation, fund selection, and rebalancing off their plate, simplifying matters.

Yet, when we reflect on some of the biggest breakthrough investors have had in achieving better outcomes, we find they stem from removing discretion and enforcing routine.

Prudent investing can feel solitary and unsettling. Think March 2020, the euro crisis before that, the Global Financial Crisis and the tech bubble. At times like those, even the most boring and regimented steps we take as investors might seem like an act of valour. You are charging up that hill while droves of others are clambering down. That’s not going to leave you feeling affirmed or charged up. You’re going to feel dumb and drained, questioning yourself.

There seems to be a morality narrative doing the rounds. You don’t get the guy or the girl at the end and there’s no sunset to walk off into. In the market, there are no heroes or villains. The stock market’s workings are purely business. Again, this is when investing is working.

IPOs are legal. It is nobody’s fault if the investors support the fancy valuations and the market wobbles. And, if the regulators perceived a problem, then they can devise a solution to prevent its reoccurrence.