Anthropic’s IPO Could Arrive in September. This Warren Buffett Advice From 1996 Shows What to Do Next.
After Space Exploration Technologies (SPCX -2.47%) went public in June, the next big initial public offering (IPO) was expected to be from the artificial intelligence (AI) start-up Anthropic. According to a report from The Wall Street Journal, Anthropic executives are meeting with potential investors to bolster confidence in the IPO, which could arrive in September or early October. Valued at $965 billion based on its final private funding round, it’s poised to rival the SpaceX IPO for attention.
But some investors are also likely to repeat the mistakes made when SpaceX went public, including investing in hype and hoping for a quick payday. Following one piece of advice Warren Buffett shared in 1996, however, can help minimize regrets in investing.
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The powerful investing lesson Buffett shared in 1996
Buffett is known to prefer investing in industries that he understands, which is why he tended to shy away from tech stocks when he was the head of Berkshire Hathaway. Still, even if he wouldn’t ever consider investing in Anthropic, this oft-quoted advice from his 1996 shareholder letter perfectly applies:
If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.
With IPOs in particular, it can be easy to get caught up in the hype and the hope for quick gains. The fear of missing out can be intensified when one hears about a stock surging on its first day of public trading.
With SpaceX, the IPO price was $135, but that price was largely reserved for insiders. The general public had to wait until June 12 to buy shares, and on that day, SpaceX closed at $160.95. The day’s touted gain was 19%, which could easily make someone feel like they missed out if they had been watching the action from the sidelines.
But for retail investors, the stock opened at $150 per share on June 12, and many had difficulty filling their orders at that price. So, even for those who were able to buy all the shares they wanted at $150, that gain by the time the stock closed was more like 7.3%.
The SpaceX stock price rallied for a few days after its debut to a peak of $225.64, but then, it dropped, falling as low as $104.83 on Aug. 3. During that time, anyone who bought in on hype alone may have been more inclined to panic-sell. Those who did likely sold at a loss.
Space Exploration Technologies
Today’s Change
(-2.47%) $-3.62
Current Price
$142.54
Key Data Points
Market Cap
Day’s Range
$139.80 – $145.05
52wk Range
$104.83 – $225.64
Volume
80M
Avg Vol
125.9M
What to do instead
Buffett’s advice reminds us that one of the most important decisions a person could make before buying Anthropic shares will be deciding their intended holding period. If your thesis is that the stock price will skyrocket initially and keep rising, and your goal is to pursue quick gains, that could leave you vulnerable to making a knee-jerk reaction to sell if the price starts to decline rapidly.
For a more aggressive investor who understands Anthropic’s business, upside potential, and risks, and who feels comfortable about holding the stock for years, buying it on its IPO day might be a more appropriate strategy. How the stock performs over a few days or weeks will be less important to such investors than its performance over a decade.
A more conservative investor who likes the upside potential of Anthropic but is worried about the risks it faces may want to instead look into buying shares of more established companies that have stakes in the AI start-up. That list includes Amazon (AMZN -0.72%), which is estimated to own a mid-to-high-teens percentage of it, and Alphabet (GOOG +0.46%) (GOOGL +0.67%), which was estimated to own 14% of the company as of March.
Finally, investors can sit out the IPO entirely. If Anthropic conflicts with your risk tolerance and isn’t a good fit for your portfolio, there are plenty of other investable opportunities.
