Do the Unicorns Signal a Market Peak?

Unicorns in the financial markets bear scant resemblance to the gentle creatures of mythology.  Companies with private valuations of $1 billion or more, called "unicorns" by investors, have been going public recently after many years of incubation by private funding.  The results haven't been pretty.  Two of the largest--Lyft and Uber--have lost value.  Snap, another large company that went public a couple of years ago, has also lost value. The sagging values of these high profile companies raise a question whether investor confidence is receding and the market is potentially headed for a downturn.

Much of the reason for the price drops is attributed to the long incubation periods for these companies, during which their values rose into the billions.  Whereas 20 or 25 years ago, companies might go public after having achieved valuations of a few tens of millions, unicorns have provided enormous returns to venture capitalists, early employees and other private investors before the retail schlemiel is given a chance to lose his money.  In other words, the upside pop that often accompanied ipo's in the past has already been pocketed by the smart money.  What remains for Ma and Pa trying put a little money into their IRAs is the uncertainty of companies that have yet to consistently turn a profit.

A hot ipo market fuels overall stock values.  Look at the 1990's, when ipo enthusiasm grew so vast that things got out of hand and the 2000-01 downturn took some 70% off the value of the Nasdaq index.  The recent unicorn fails will dampen further ipo activity.  The smart money was too clever by half in using ipo's as a way to vividly demonstrate to retail investors that they are but a septic system for the rich and well-connected. As President Trump's trade wars continue, the chances for a no-deal Brexit increase, and investor enthusiasm wane, the chances for a significant market downturn rise.  The unicorn ipos may signal a peak in stock prices.  Embrace cash.  In uncertain times, it's worth its weight in gold.