Lost in SpaceX

by Paul R. Ruedi, CFP®

A month and a half ago the SpaceX IPO dominated financial headlines and kitchen table conversations about investing. Some people were fearful retail investors were being sold an overpriced exit strategy for the initial investors in SpaceX. Others were ready to bet the house on Elon Musk’s new venture. But after all the initial hype, the story of the SpaceX IPO has turned out to be yet another cautionary tale about chasing the hot investment of the day.

On June 12th SpaceX went public at a price of $135 and opened trading that day at $150. It proceeded to rise rapidly, reaching a high of $225.64, an increase of over 50% from its opening price. Everyone who purchased in those early hours of trading likely felt like geniuses. 

This rise left many investors fearing they had missed out. Hoping it wasn’t too late, many investors piled in. Many at prices over $200. I saw a post on reddit from a saver in his 30s who pulled his entire 401(k) balance of $300,000 out of a total stock market index fund and bet it all on SpaceX at a price of $209. This may be an extreme example, but it is not a surprise given the enthusiasm and fear of missing out that surrounded SpaceX.

After the initial wave of enthusiasm, the price of SpaceX stock proceeded to slide over the next month, falling as low as $119.68. That is a nearly 47% decline from top to bottom. Though SpaceX stock has bounced back slightly from that low point, it is still below the initial public offering price of $135. 

Hovering around $128 as I write this, it is safe to assume the vast majority of people who purchased SpaceX stock are currently in the red on their position. The poor guy from reddit who went all in with his 401(k) is down 38.8%. Assuming he didn’t sell on the way down, his portfolio that was worth $300,000 is now worth under $184,000.

What was hyped as the investment of the century turned out to be yet another cautionary tale about the dangers of chasing the hot stock of the day. Though some initial investors had the chance to come out ahead, almost every post-IPO buyer of SpaceX is currently sitting on losses. You must resist the temptation to chase investments like SpaceX if you want to have a successful investment experience. If you aren’t able to do that yourself, you may want to work with a financial advisor. 

Paul R. Ruedi is a Certified Financial Planner™ professional with Ruedi Wealth Management in Champaign, Illinois.