What the Deliveroo IPO can teach us about investing

Losing money on an investment is painful, says John Stepek, but it can force us to look at our process in a way that making money doesn’t.

Deliveroo: a learning experience
(Image credit: © Deliveroo)

The Deliveroo initial public offering (IPO) was meant to be the moment at which London unleashed a tech unicorn to rival those constantly springing up across the Atlantic. Instead it was a dreadful flop. Matthew Lynn looks at three lessons the City could learn from the disappointment in this week's magazine, but for me the key point is his first one – it’s all about the price. It’s heartening to see that even in a market like this, where some people will pay millions of dollars for the non-exclusive right to gaze upon a digital artwork by a hitherto unknown artist, they’ll still turn their noses up at an overpriced takeaway delivery firm. Founder Will Shu can at least comfort himself with the fact that the share price actually rose when full, unrestricted trading began in the shares on Wednesday.

However, that won’t be much consolation for those of his customers who bought in at 390p. It’s highly unlikely that anyone invested their life savings (the maximum investment was £1,000), so most will probably write it off and chalk it up to experience. But it would be a shame to just let this opportunity go. Losing money on an investment is painful, but it can force you to look at your process in a way that making money simply doesn’t. So if you did invest, the question here would be: why did you buy Deliveroo at 390p? Does your rationale still hold? Would you buy more (if you could) at the current price? If not, is there really nowhere more promising that you could invest that £750, say, than leaving it sitting in Deliveroo?

I’m not saying that you should hold or sell either way. But confronting this dilemma head-on in a relatively low-stakes situation like this could be a really useful learning experience, particularly if you’re just starting out as an investor. An under-rated trait of successful investors is an ability to control their emotions and to think clearly even when losing money (or suddenly making a lot of it).

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That leads us on to the other lesson from Deliveroo – that successful investing in individual equities is hard work. We frequently criticise fund managers here at MoneyWeek – the majority of managers still struggle to beat the market consistently (if at all), partly because they have the added hurdle of earning back their fees on top. Yet there’s a reason they struggle. Free markets with lots of participants are by and large pretty good at valuing things, whether that’s shares, commodities or fancy jewellery. Yes, they’re prone to manic phases (arguably the US market is bubbly right now, though not so the UK market). But overall the wisdom of crowds does a good job of incorporating information that’s publicly available (and some that isn’t) into prices.

In turn, that means you need to do a lot of digging to find individual stocks the market has mis-priced. If you’re not able or willing to do that legwork, it’s absolutely fine to stick with worrying more about asset allocation (how you split your money between equities, bonds, property, cash and gold) and to leave the stock picking to carefully chosen fund managers, or simply find the cheapest index trackers.

If you’d like to learn more, I interviewed Stephen Clapham, analyst and author, on this topic for our podcast this week. Listen here, and get a 30% discount code for his excellent stock picking guide, The Smart Money Method.

John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.