Usually, at the end of a bull market, companies rush to go public with IPOs (initial public offerings). It feeds the public’s hunger for stocks, but it is of not much interest to Warren Buffett. For Buffett, it’s just not where you are likely to get a good price.
“An auction market, prevailing in the stock market, will offer up extraordinary bargains sometimes, because somebody will sell a half a percent, or one percent of a company at a price that may be a quarter of what it’s worth, whereas in negotiated deals, you don’t get that,” Warren Buffett said at the 2004 Berkshire Hathaway Annual Meeting. “An IPO situation more closely approximates a negotiated deal. I mean, the seller decides when to come to market in most cases. And they don’t pick a time necessarily that’s good for you.”
Buffett’s full explanation on why he avoids IPOs
© 2021 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.