WASHINGTON, October 5, 2017 – Thursday’s market action ended with all three major averages up yet again, as the October market melt up continues.
Our portfolios are doing tolerably well this week, although our position in Allergan convertible preferred A shares (symbol: AGN/PRA, your brokerage’s symbol may vary) continues to flounder. Simply stated, that’s largely due to the continuing controversy surrounding parent company Allergan’s (AGN) selling of patent rights for its top-selling dry-eye treatment to a northern New York Indian tribe as a novel way to avoid U.S. court hearings on the patent.
Nonetheless, it hampers forward motion in our portfolio. Other than that, however, most of our issues were doing pretty well this week. This led us to attempt an unusual IPO gamble.
That IPO gamble involves putting in for shares of a new IPO stock known as Switch, Inc. (proposed NYSE symbol: SWCH). Switch is billed in preliminary literature as “a technology infrastructure company involved in the design, construction and operation of data centers.” In other words, Switch is essentially a server farm.
Or, as Switch puts it in its final IPO prospectus,
“Switch is a technology infrastructure company powering the sustainable growth of the connected world and the Internet of Everything.
“Our mission is to enable the advancement of humanity by creating smart, resilient and sustainable infrastructure solutions that support the most innovative technology ecosystems.”
In other words, the company is a server farm that differentiates itself from other server farms by means of its innovative software enhancements. So far, so good.
Ditto the fact that the company numbers among its customers a surprisingly impressive array of Fortune 500 companies.
The problem with this issue is that it shares with the ultimately failed IPO of Snapchat’s parent company (SNAP) an investor-hostile stock structure. Although we successfully made some money on the SNAP IPO before it imploded (as we knew it would), we declared at the outset that we despised its control-freak founder for selling IPO shares without voting rights, demanding investor money without giving new shareholders any voting rights whatsoever.
Switch is more or less following SNAP’s game plan but with a bizarre twist. The IPO shares indeed have voting rights. But, via a strange, interlocking arrangement of more or less closely-held sub-classes of shares that hold mega-voting rights, public investors will never have anywhere close to a majority of the voting shares now or in the future.
This effectively replicates SNAP’s anti-investor arrogance, something that hasn’t worked out very well so far for SNAP’s disgruntled shareholders. Also, like SNAP, Switch, Inc. isn’t profitable, either, although that’s hardly a rarity in techworld IPOs, which tend to trade on perceived future value. At least before its first publicly reported quarterly earnings report.
As we did with the IPO of SNAP, we’ve put in for shares of Switch, which prices tonight and begins trading roughly mid-morning Friday. We’ve done so for exactly the same reason we had for taking our SNAP adventure. We suspect the shares will price above their proposed $14-16 range, indicating at least some decent demand.
We then expect a decent pop in the shares at the outset, followed by some churning over the next 31 days as the new shares try to find some footing, hopefully not too far from that initial pop. If that turns out to be true, we’ll more than likely dump the shares at that point. (As we’ve indicated to longtime readers, our discount brokerage pretty much requires us to hold on to IPO shares for at least 31 calendar days rather than flip them on opening day like the rich guys do.)
As with SNAP, we’re holding our nose on this one, due to our intense distaste for new issuers who eagerly seek fresh investor money for their still market-untried companies while refusing to give those investors any say over corporate direction moving forward.
This game is alarming in an existential way, in that it moves our current investing world closer and closer to the globalists’ vision of a New Feudalist world in which workers and investors alike are carefully removed from any ability at all to have influence in their own financial destiny.
That said, we’re always willing to take a quick bet on a potentially viable IPO where initial investor enthusiasm can provide a short term profit before we exit. Where such a company goes after that is not our problem. If you stay around in many issues like these, odds improve that you’ll get burned in the end.
We’ll be back tomorrow to tell you how this one turns out. After all, we might not get any shares.