Fernando Fischmann

Here’s A Great Piece Of Advice: Never Bet Against A Megatrend

12 April, 2019 / Articles

Lyft’s IPO last week was a huge success: more than seventy million shares changed hands, showing high demand for a company that continues to generate significant losses and has never been in the black. Nevertheless, the markets seem willing to accept sustained losses over years in return for profitability at some unspecified point in the future in return for getting in at the ground floor of a nascent industry.

But things changed in the days that followed the launch: the company opened sharply down, its price fell by 12%, and fell below its IPO price, staying there until Friday, when it finally managed to recover it initial price. That same day, one of Wall Street’s best-known short-sellers, Andrew Left, said betting against the company was “an amateur trade”, concluding: “Shorting disruptive companies that dominate a megatrend simply because they lose money is a sure way to go broke,”

What happened between Monday and Thursday of last week? Amateur investors thought they saw an opportunity to make money betting against the value of the company and seeking to benefit from its loss of value. The absence of any comparable companies, market ignorance and, according to company sources, Morgan Stanley’s role, which is overseeing the IPO of arch rival Uber, in encouraging this behavior, could all have played an important role. Morgan Stanley has denied any involvement, although Lyft is considering a lawsuit, having documented events closely.

Lyft’s opening week should teach us something about differentiating speculative trends. Nobody in their right mind doubts ride-hailing’s future, least of all Andrew Left:

The entire ride share market in the US only accounts for 1% of miles traveled today, we have only just begun. This is not a trendy video game or a GoPro camera, this is a way of life that is saving people time and ensuring safety. Ridesharing is not a fad, it is a megatrend.”

Surely it’s clear to everybody by now that the future of transportation is as a service. City dwellers will overwhelmingly choose not to own a vehicle and instead will use cars from fleets that, in addition, will be completely autonomous within a very short period of time. The shape of our cities is going to change, as will the behavior of the people who live in them, and what’s more, all this is going to happen much sooner than many of us imagine.

The only doubt about Lyft is whether it will lead this nascent industry or whether it will be second or third. Uber is following an even more aggressive expansion strategy and its upcoming IPO will also attract huge numbers of investors. The role of China’s Didi, which is now moving strongly into new markets, is not entirely clear, and neither are the strategies of the traditional automobile manufacturers, a number of which are betting on a future where they will not sell their products to individuals but will instead manage the above-mentioned fleets.

As with any fledgling industry, many questions remain to be answered. Predicting the future is not easy and nobody has a fully functioning crystal ball, but many of us probably agree with Andrew Left: there is no better way to lose money than to bet against a megatrend.

The science man and innovator, Fernando Fischmann, founder of Crystal Lagoons, recommends this article.



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