IntroductionHey, what’s up, everyone? Welcome back to another episode of The Investing Iguana, the show where we talk about all things investing and help you make smart decisions with your money. I’m your host, Iggy, and today we’re going to talk about a very interesting case study: the rise and fall of VinFast Auto Ltd, an electric-vehicle maker from Vietnam that went from being worth more than McDonald’s to losing 80% of its value in just a few months. How did this happen? What can we learn from this? And how can we avoid being caught up in the gambling fever that has gripped the stock market lately? Let’s find out. But before we dive into the details, I want to ask you a favor. If you enjoy this video and find it helpful, please hit that like button and subscribe to my channel. It really helps me out and lets me know that you appreciate my content. And if you have any questions or comments, feel free to leave them below. I love hearing from you and I try to respond to as many as I can. Alright, let’s get started. VinFast and IPOVinFast is a subsidiary of Vingroup, a conglomerate that operates in various sectors such as real estate, retail, hospitality, education, health care, and technology. VinFast was founded in 2017 with the ambition of becoming a global leader in electric vehicles. The company launched its first models in 2019 and announced plans to expand to international markets such as the US, Canada, and Europe. VinFast went public on the Nasdaq stock exchange on August 15, 2023, through a merger with a special purpose acquisition company (SPAC) called Black Spade Acquisition Co. A SPAC is a shell company that raises money from investors and then merges with a private company to take it public. SPACs have become very popular in recent years as a way for companies to bypass the traditional initial public offering (IPO) process and access capital faster. Rollercoaster RideThe deal valued VinFast at $15 billion, making it one of the most valuable electric-vehicle makers in the world. The stock opened at $10 per share and quickly soared to over $50 by September 1, 2023, giving VinFast a market capitalization of over $100 billion. That was more than McDonald’s, which had a market value of about $95 billion at the time. But then things took a turn for the worse. On September 2, 2023, VinFast reported its second-quarter earnings for 2023. The results were disappointing: The company had a net loss of $49.8 million on revenue of $1.16 billion. That was an improvement from the previous quarter, when it had a net loss of $32.2 million on revenue of $1.13 billion, but it was still far from profitable. The market reacted negatively to the earnings report and started selling off VinFast shares. The stock dropped more than 20% that day and continued to slide in the following days. By September 9, 2023, VinFast shares had plunged to below $10 per share, wiping out more than $80 billion of market value in just one week. The influence of Retail InvestorsSo what happened? How did VinFast go from being a hot stock to a flop in such a short time? And who were the investors who bought and sold VinFast shares at such extreme prices? The answer is: retail investors. Retail investors are individual investors who buy and sell stocks for their own personal accounts, usually through online platforms or apps. Retail investors have become more active and influential in the stock market in recent years, thanks to several factors:
These factors have created a perfect storm for retail investors to engage in speculative trading behavior. Retail investors have been chasing after stocks that have high growth potential or high volatility or both. They have been influenced by hype, rumors, memes, influencers, celebrities, or even emojis. They have been buying stocks without doing much research or analysis on the fundamentals or valuation of the companies they are investing in. The Greater Fool TheoryIn other words, retail investors have been playing what is known as “the greater fool theory”. The greater fool theory is the idea that you can make money by buying an overpriced asset and selling it to someone else who is willing to pay even more for it. You don’t care about the intrinsic value of the asset; you only care about finding a greater fool who will buy it from you at a higher price. This is what happened with VinFast. Retail investors saw VinFast as an exciting opportunity to invest in a fast-growing electric-vehicle maker that could rival Tesla. They were attracted by the hype and the momentum of the stock. They ignored the fact that VinFast was unprofitable, had a lot of debt, faced a lot of competition, and had no track record of success in the US market. They bought VinFast shares at inflated prices, hoping to sell them to someone else who would pay even more. But eventually, the greater fool theory ran out of steam. There were no more buyers willing to pay higher prices for VinFast shares. The reality of the company’s financial situation and outlook caught up with the market. The bubble burst and the stock crashed. This is not a new phenomenon. The history of the stock market is full of examples of bubbles and crashes caused by irrational exuberance and speculation. Think of the dot-com bubble in the late 1990s, the housing bubble in the mid-2000s, or the Bitcoin bubble in 2017. The same pattern repeats itself over and over again. Key 5 Lessons to Learn from ThisSo what can we learn from this? How can we avoid being caught up in the gambling fever that has gripped the stock market lately? Here are some tips:
Investing is not a casino game. It is a serious and rewarding activity that can help you achieve your financial goals and build wealth over time. But it requires discipline, diligence, and wisdom. If you follow these tips, you can avoid being played by the greater fool theory and become a smart investor. ConclusionThat’s all for today’s episode of The Investing Iguana. I hope you enjoyed it and learned something new. If you did, please hit that like button and subscribe to my channel for more videos like this one. And don’t forget to leave a comment below and let me know what you think of VinFast or any other stock that you are interested in.
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