OpinionBuy your favourite stars' perfume, not their share tips
The celebrity cornerstone investor offers no guarantee that a company making an IPO will go on to be a stock market success story
According to National Geographic's latest weekly series The '80s, the 1980s was a decade of such importance that its cultural shifts and innovations continue to underpin everything we see today. Gordon Gekko said "Greed is good," Madonna sang Like a Virgin, and celebrities and sports stars started selling everything from underwear and perfume to cars. A mix of celebrity-ism and sales has proven to be a powerful combination, and it only took Wall Street bankers a nanosecond to work this out.
Fast-forward to today in Hong Kong, and with the IPO market gradually rumbling back to life, we all know what to expect: yet many of us cannot resist the urge to buy, because the cornerstone investor is famous investor X, or astute investor Y, or tycoon Z.
It reminds me of investors who pile into a hedge or private equity fund with minimal due diligence, because a reputable institutional investor has backed the investment. After all, can't we rely on the hard work they have done to vet it? I mean, what famous person or reputable investor would risk their reputation to support a dog?
Before I take a stab at answering these questions, it is interesting that some celebrities have cut out the marketing and banking middle-men to launch their own investment products. Their success has proven that celebrity-ism's grip on investors' imagination and emotions can be iron-clad, thereby providing more research fodder for behavioural finance academics.
Returning to the questions above, investors must realise that there might be any number of reasons why a tycoon or famous investor backs a particular IPO. For example, does the investor or her affiliates have other business with any affiliates of the company? Does the investor want something from the company or its affiliates, such as similar backing somewhere down the road? Or is it payback for what the company or its affiliates did to support the investor some time ago? In some situations, famous investors backing a deal might get special terms that ordinary investors might not get.