I recently finished reading Bull! A History of the Boom and Bust, 1982–2004 by Maggie Mahar. The book was published in 2004, not too long after the dot-com bubble burst. I’ve seen the book recommended a few times and noticed that the cover includes an endorsement by Warren Buffett, so I ordered it. Also, the book’s narrow focus on the period when interest rates started what ended up being a forty-year decline through 2004 was intriguing to me.

I enjoyed reading the book. Given the focus on a very specific period, it provides lots of details about the economic environment, who the main figures were who had an impact on the stock market, and the key decisions they made. Mahar does a good job of describing her perspective on the impact those decisions had on inflating and bursting the internet bubble.

One thing that caught my attention was her explanation of the role the inclusion of high-flying technology companies in stock market indexes (e.g., the S&P 500 and NASDAQ Composite) played in valuations reaching levels that were hard to justify. She believes that this, combined with the rise of the 401k and index funds, contributed to a significant amount of capital being allocated to these highfliers even though valuations were hard to justify. The valuations of companies kept rising because capital kept flowing into the index funds until the stock market bubble burst around 2000.

This caught my attention because last month, I listened to an interview of David Einhorn, founder of Greenlight Capital. Einhorn shared his opinion of the impact that passive investing is having on the valuations of certain companies in today’s stock market. Essentially, he believes that valuations of companies continue to rise because they’re part of one or more stock market indexes (e.g., the S&P 500 and NASDAQ Composite). Passive index funds track indexes, which leads to the funds buying more shares in these companies, regardless of the valuation, as more investors allocate capital to the passive index funds. For this section of Einhorn’s interview, listen here.

I found this interesting because there’s a twenty-year gap between this book’s publication date and Einhorn’s interview.

This weekend, I was chatting with a friend about public markets and IPOs. Neither of us knew how IPOs are trending this year, so I decided to check the stats. Here’s what I found:

2024 IPOs

• January: 15
• February: 16
• First two months total: 31

For comparison, here are the stats for the same months for the last five years:

2023 IPOs

• January: 8
• February: 17
• First two months total: 25
• Full-year total: 154

2022 IPOs

• January: 34
• February: 32
• First two months total: 66
• Full-year total: 181

2021 IPOs

• January: 118
• February: 132
• First two months total: 250
• Full-year total: 1,035

2020 IPOs

• January: 12
• February: 20
• First two months total: 32
• Full-year total: 480

2019 IPOs

• January: 6
• February: 21
• First two months total: 27
• Full-year total: 232

The number of IPOs completed in the first two months of this year has increased compared to the same months in 2023 (which was an anemic year). But we’re well below the number of IPOs we saw in 2021 (which was a record year).

Interestingly, the stock market reached an all-time high this past week. The NASDAQ Composite Index reached a record high close of 16,274 this past week. Its previous high was 16,057 over two years ago in November 2021.

I’m curious to see how IPO activity plays out for the rest of this year, especially if the NASDAQ Composite Index stays above the records set in 2021.

Yesterday I shared a key concept I took away from reading Home Depot cofounder Ken Langone’s book I Love Capitalism!: An American Story. Today I read a section where Langone shared the details of how he orchestrated Home Depot’s successful IPO in 1981. It was a tough environment in which to raise money from public-market investors. The economy was in a recession, inflation was through the roof, and interest rates were surging. But Home Depot was just a start-up and needed cash.

One week before the IPO date, bankers said they could fill only $3 million of the target $6 million the company needed to raise. Langone got to work and figured out a way to craft a creative deal and sell it to the existing investors (who ended up not being able to sell shares in the IPO). Everyone agreed to the new terms, and the company raised the $6 million it badly needed.

Langone’s reflection on this difficult situation stuck with me:

If there’s anything I would take a bow for throughout this whole process, it would be this: never giving up, and thinking creatively, instead of reactively, when the chips are down . . . . You get to enjoy lemonade instead of the lemons God gives you . . . .

Langone was in a tough spot. Home Depot cofounders, employees, and existing investors were all counting on him to remove the IPO roadblocks before the deadline. He was in a high-pressure situation, and he kept pushing. He focused on figuring out how to accomplish the goal given the hand they’d been dealt. His solution was unorthodox but ended up working. Absent Langone’s persistence and resourcefulness, Home Depot might not have gone public in 1981 or, worse, survived.

A few weeks ago, a friend suggested that I learn about the founding of Home Depot, since I’m in Atlanta. I did, and one of the cofounders wasn’t what I expected. His name is Ken Langone. He’s a colorful character from humble beginnings, a hybrid between entrepreneur, venture capitalist, and investment banker. I watched a few YouTube videos of him and got more interested in his story.

I discovered that Langone wrote a book called I Love Capitalism!: An American Story. It’s about his life and adventures in business. I bought it as soon as I found it and started reading. I’m not finished yet, but so far I’m enjoying it.

One concept that Langone shares in the book is over-delivering to cement relationships. Langone was the banker who IPO’d Ross Perot’s company, Electric Data Systems (EDS), in 1968. Langone had never taken a company public before and had a lot riding on the EDS IPO being successful. He thought highly of Perot. He wanted this transaction to be a success, and he also wanted to build a long-term relationship with Perot. Because of EDS’s uniqueness and growth potential, he was sure the public markets would be receptive to the IPO. He told Perot he could take EDS public at 100 times earnings (a number far higher than other bankers thought possible), or $15 per share.

The IPO was a success, and Langone was able to deliver Perot 115 times earnings, or $16.50 per share. Perot was ecstatic. He publicly praised Langone whenever the opportunity arose. Perot’s praise and the publicity about the EDS IPO got Langone a flood of new business. It also cemented his relationship with Perot because he far exceeded Perot’s lofty expectations.

Langone watched others over-promise and under-deliver. They’d close a transaction but ruin relationships because they’d lost people’s trust. Langone didn’t want to ruin relationships, so he took a different approach. To build a relationship and trust, he set what he thought were reasonable expectations and worked doggedly to over-deliver.

Fun fact: Because of Perot’s relationship with Langone, Perot was one of the first people who got the chance to invest in Home Depot when it was an early-stage company in 1978. Perot came close to investing $2 million and would have owned 70% of Home Depot if the transaction had been completed. As of the writing of this post, Home Depot has a market cap (i.e., valuation) of roughly $375 billion.

I’m following the rumored Reddit IPO, as it’s anticipated to be the first major technology IPO of 2024. The performance of this IPO could affect the actions of other late-stage technology companies and venture capital investors. With the NASDAQ trading just shy of all-time highs as of this writing, a well-performing IPO could unleash a wave of technology IPOs.

Last week, Reddit officially filed its Form S-1 with the SEC, indicating its intention to publicly list on the New York Stock Exchange (NYSE). Per CNBC, the company’s public market debut is expected in March (but that isn’t confirmed and is subject to change).

I’m curious to learn more about Reddit’s business and follow its post-IPO performance (assuming it moves forward with its public offering).

Warren Buffett once said, “Interest rates power everything in the economic universe, and they have some effect on the decisions we make.” I decided I wanted to learn more about interest, so I bought a few books.

This week I finished reading The Price of Time: The Real Story of Interest by Edward Chancellor. Chancellor’s main points are that interest is necessary to allocate capital to its best uses and valuing assets would be impossible without interest. He provides historical content on interest, going back to Babylonian times. I enjoyed how Chancellor detailed the interest-rate environments of various time periods and the impact they had on society and the economy at the time.

I’m glad I read the book. I highlighted many sections I want to revisit someday.

Today a friend texted me about a company I follow and sent a screenshot of a news headline. He wanted me to be aware that the company may be going through hard times. I read the headline and laughed.

The headline included company financial figures that were wrong. I know they were wrong because I’ve read the reports issued by the company. The writer clearly didn’t understand the company and had confused the details. I pointed this out to my friend and shared the correct financial figures, which show the company’s doing fine.

This exchange was a reminder of the value of getting first-source data. When you rely on other people’s interpretations, you run the risk of basing your conclusions and actions on incorrect interpretations.

More interesting details came out today in an article about Reddit’s potential IPO. A few points reported by Bloomberg caught my attention:

• Revenue increased more than 20%, from $666 million in 2022 to over $800 million in 2023.
• The company is unprofitable. Adjusted EBITDA is negative $69 million.
• Its listing is closely watched and a bellwether for tech IPOs.
• It’s expected to unveil a public IPO filing as soon as this month.
• It could start marketing its IPO as soon as March.

These assertions can’t be confirmed as accurate until the company files its S-1 with the SEC (reporters, being human, can make mistakes).

Assuming the info is accurate, I have a few thoughts:

• This IPO will likely be a bellwether given Reddit’s brand awareness among tech and non-tech investors and the timing—if it happens, it will be the first tech IPO of 2024. This means it will be watched closely by VCs and founders. Its performance will influence other companies considering an IPO in the first half of this year.
• Last year’s fall IPOs of Instacart and Klaviyo haven’t performed well to date. Both are still trading below their IPO offering prices, even as the NASDAQ is nearing all-time highs (more on that here). What about Reddit’s offering will be different and get enough investors interested in purchasing shares?
• Reddit is most likely free cash flow negative and burning cash—I’m not sure at what rate or how close they are to being cash flow breakeven. But I wonder how this will impact public-market investor receptiveness to this listing. Instacart and Klaviyo both reported positive free cash flow for the 2023 quarters proceeding their IPO, and those listings haven’t performed well.
• I suspect public-market investors are rethinking revenue multiples for technology companies. I’m curious to see how investors value Reddit given that it’s likely consuming cash.

I’m looking forward to Reddit filing its S-1 so I can dig in. If the company decides to proceed with the listing, I’m really curious to see how investors receive this company.

Today I read in an article that Reddit picked the New York Stock Exchange for its initial public offering. Reddit is a social platform that allows users to create digital communities based on niche user interests. It’s probably best known to mainstream America for the events of 2021, when a community named WallStreetBets played a role in the GameStop saga. I visit Reddit periodically and find it helpful. I enjoy being able to get the unfiltered, crowdsourced views of others on specific topics.

Reddit is a well-known tech company. Picking an exchange is a sign it’s seriously considering going public soon. But anything could happen. The company could decide not to list (as it did in 2021). If it does go forward with a listing, that could be helpful in gauging public-market investor appetite for new technology companies. If it lists and is successful, other companies might follow its lead.

Today I read an interesting fact. In the 1860s, there was a unique group of successful stock market investors. They went against the grain and were thought of as outsiders by their investing peers. They were called “panic birds.”

Here’s what they did that was so different from what other investors did:

• You had to physically visit Wall Street to buy or sell stock then. Most investors were on Wall Street daily, regardless of whether they were buying, selling, or just observing the market. The panic birds, though, stayed far away from Wall Street when conditions were normal. They didn’t want to get caught up in the prevailing group think or speculative mindset that prevailed among investors on Wall Street. They wanted to be able to see things clearly and think objectively.
• They went to Wall Street only when the market and other investors were in a panic or desperation was rampant.
• They bought only when two conditions were met: prices had crashed and liquidity was scarce (i.e., they were getting the bargain of a lifetime).
• When they did buy, they didn’t buy broadly; instead, they bought carefully in only the highest quality companies.
• They held their investments long term. This wasn’t common—people regularly bought and sold in those days.

This list describes some successful investors alive today. For example, Warren Buffett has a panic-bird investing style. He’s had outsize success, and he’s well respected on Wall Street. Yet he lives in Omaha, Nebraska. He buys only when companies are trading at a material discount from what he believes their intrinsic value is. He’s been known to buy large positions in a handful of companies during times of crisis, and he usually holds those positions for a long time.

I found all this interesting. It showed me that most good ideas aren’t new. They’re borrowed from people who came before us, figured things out through trial and error, and went on to achieve outsize success. I suspect that Buffett and other successful investors studied history and borrowed from the most successful and timeless ideas as they formulated their investing approaches.