The Psychology of Collecting and the Impact on IPOs in 2020

The Psychology of Collecting and the Impact on IPOs in 2020

Collecting has long been a fascinating subject for psychologists, who often take a Freudian perspective when trying to understand why people collect. They highlight the controlling and impulsive dark side of collecting, suggesting that individuals have a deep-rooted need for an "object of desire" that drives their collecting behavior. Interestingly, this desire to collect starts from birth, indicating that it is an innate propensity within us.

However, the motives behind collecting are not mutually exclusive, as different motives combine for each collector, driven by a multitude of reasons. For many collectors, the value of their collections is not monetary but emotional. Collecting becomes a lifelong pursuit, a quest that can never truly be completed. The act of collecting may provide psychological security by filling a void in one's self or adding meaning to one's life.

There is a certain joy that collectors experience when adding a new find to their collection. The excitement of the hunt, the anticipation of stumbling upon a rare item, and the satisfaction of finally obtaining it can be incredibly fulfilling. Moreover, collectors often find a sense of social camaraderie when sharing their collection with other like-minded enthusiasts. The act of displaying their treasures and discussing their passion with others can create a strong sense of belonging and validation.

Interestingly, the psychology of collecting can also be observed in the world of Initial Public Offerings (IPOs). In 2020, IPOs have seen a significant trend known as the "IPO pop." Only 25% of companies ended their first day of trading lower than their IPO price, while over 25% of companies saw their stock prices soar more than 50% higher than their IPO price. This phenomenon highlights the desire for investors to obtain a highly sought-after asset and the potential for significant returns.

The median company that went public in 2020 experienced a 20% increase in stock price on the first day, indicating a significant demand for these newly available shares. However, it is worth noting that these companies may have missed out on substantial funding opportunities. In aggregate, the 61 companies that went public in 2020 raised $6.7 billion less than they could have if their IPOs had been priced according to the market's valuation of the company. This highlights the institutional investors' goal of acquiring the stock as cheaply as possible to maximize their return on investment.

Drawing a parallel between the psychology of collecting and IPOs, it becomes evident that the desire for ownership plays a crucial role. Both collectors and investors are driven by the need to possess something unique and valuable. The emotional satisfaction derived from owning a rare collectible or acquiring shares in an exciting new company can be incredibly powerful.

Considering these insights, here are three actionable pieces of advice for collectors and investors alike:

1. Understand your motives: Take the time to reflect on why you collect or invest in certain assets. Is it driven by a genuine passion or a desire for financial gain? Understanding your motives can help you make more informed decisions and derive greater satisfaction from your pursuits.

2. Balance passion and financial considerations: While collecting or investing can be emotionally fulfilling, it is important to strike a balance between your passion and financial considerations. Set realistic goals and evaluate the potential risks and rewards associated with your choices.

3. Seek community and knowledge: Engage with other collectors or investors who share your interests. Joining communities or attending events related to your passion can provide valuable insights, support, and a sense of belonging. Additionally, continuously expand your knowledge base to make more informed decisions and enhance your overall experience.

In conclusion, the psychology of collecting reveals the innate desire for ownership and the emotional fulfillment it brings. The same desire is evident in the world of IPOs, where investors seek to acquire shares in promising companies. By understanding our motives, striking a balance between passion and financial considerations, and seeking community and knowledge, we can make more informed decisions and derive greater satisfaction from our collecting and investing endeavors.