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- Spotify’s direct public offering, set for Tuesday, is a risky one.
- Alex Castelli, managing partner and co-leader of CohnReznick’s National Liquidity and Capital Formation Advisory Group offers a strategy for the prudent investor.
Spotify’s using a “novel method” to go public, and that approach has its risks.
Spotify is set to directly lists its shares on the public market Tuesday, and without the full involvement of an investment bank helping to set the price, volatility in the stock price may lie ahead.
With that in mind, the prudent investor may want to choose a very calculated strategy, Alex Castelli, co-leader of CohnReznick’s National Liquidity and Capital Formation Advisory Group, told Business Insider.
“My thought is that there’s going to be a lot of interest in the stock,” he said. His core reasoning is that “this is an opportunity for anyone that wants to buy the stock to go out and buy the stock, for individual investors.”
However, the nature of Spotify’s listing means the stock price could see a higher level of volatility than normal in the period after it first lists.
“The public price of our ordinary shares may be more volatile than in an underwritten initial public offering and could, upon listing on the NYSE, decline significantly and rapidly,” Spotify said in a filing.
“If I’m really interested in Spotify, I probably go in a little bit on the first day, and then I’d probably buy it over a long period of time so I level off the volatility that’s going to happen,” Castelli told Business Insider.
The idea would be to take a small position in the company, and then wait to see how the stock performs. “The prudent investor would wait until the market settles” to take any larger positions, Castelli said.