Why I don't Like Individual Stocks: PayPal Edition
Disclaimer because I’m mentioning individual stocks: This post is for educational and illustrative purposes only. Any investments mentioned do not constitute a recommendation or solicitation to buy or sell any security. Past performance is not indicative of future results. Individual suitability varies. What works for one investor may not be appropriate for another. Please speak with your advisor before making any investment decisions. See additional disclosures at https://www.herlaarwm.com/vinces-blog
It sounds like Stripe and a private equity group named Advent International have made an offer to buy PayPal.
A decade ago, research analysts and portfolio managers talked about PayPal as though it was an impenetrable fortress. They’d tell you “up to one third of all online transactions are made via PayPal’s network,” and that it was a tech company that could never die.
Now it’s on life support and the doctor is on the way to end the misery. None of the PayPal Mafia are coming to save it either.
PayPal was like so many fintech stocks at the start of the pandemic. “We can’t go out and enjoy things, so let’s spend money hand over fist on the internet. AND. Let’s buy a bunch of the fintech stocks too. The price we pay for them doesn’t matter because our thesis is sound. We’re all geniuses. These things can only go higher.”
PayPal wasn’t the only one. Here’s Block, formerly Square (that might be one of the dumbest rebrands in history with Facebook changing to META being the dumbest).
Add here’s Affirm (still popular today). Maybe it recovers and hits new all-time highs in the future. Nobody knows.
Looking at your investment statement and seeing a stock you bought a decade ago that’s now a piece of garbage hurts (like PYPL and XYZ). Your adjusted cost base (what you paid) might show $10,000 and the market value might show $1,500. Loss aversion will hurt your feelings. That holding will stare back at you.
I see these kinds of stocks on statements (and even in the accounts I administer) regularly. Truth to be told, and embarrassingly, I was once the guy who would put in unsolicited trades for clients who desperately wanted to buy something speculative – their friends were doing it and they wanted in on the action. “It’s a tiny portion of your portfolio, if you want to take a flyer on this highly speculative, super-expensive stock so be it.”
I won’t do it today and I’ll never do it again because most individual stocks are bad investments. The worst part is that it’s hard to sell those pieces of garbage. “Maybe it’ll recover and hit new all-time highs.” Doubtful. “Maybe it’ll merge with a competitor and turn into a beast.” Not a chance. “Maybe it’ll spin off something valuable.” Not likely.
But maybe it’ll be bought by a competitor as is the case with PayPal. Stripe and the PE firm are rumoured to be offering $60.50 a share. But odds are the deal won’t make you, the investor, whole. Not even close. Buyers want a good deal. And a good deal isn’t the one you thought you were getting ten years ago.