Should I buy Morningstar?

Last Friday Morningstar, an independent investment research house, announced the terms of its upcoming initial public offering (IPO).  Morningstar will go public in a Dutch auction IPO on May 2, 2005.   7,612,500 shares will float at a price of $16-$19 per share.  At $17.50 per share Morningstar would have a market capitalization of just under $673 million, making it a small cap stock.  Morningstar will list on NASDAQ, and its ticker symbol will be MORN.  It will be the first high-profile Dutch auction IPO since Google’s wildly successful IPO in August 2004.  It is highly anticipated, and it could be another bellweather for other Dutch auction IPOs.

 

If you recall, I purchased shares of Google at IPO and did very well before I sold them earlier this year.  Google’s current share price is still less than what I earned when I sold my shares.  Because of my Google experience, I am very bullish on Dutch auction IPOs.  IPOs are traditionally the realm of insiders and institutional investors, but Dutch auctions allows small investors like me to get involved in initial public offerings.  Google’s IPO turned the investor hierarchy on its head, and small investors like me did very well.  We sat back and watched in amusement as large institutions such as Fidelity scrambled to catch up and buy Google shares weeks after the IPO.  I am hoping that lightning will strike twice through Dutch auction IPO, and I am contemplating buying shares of Morningstar at IPO.  It’s possible because I opened an OpenIPO account with W.R. Hambrecht, the bank that will run Morningstar’s auction.  (You too can open a Hambrecht account and still participate in the Morningstar IPO.  Don’t delay or you’ll miss it.) 

 

Purchasing shares of Morningstar at IPO is very attractive.  However, in the near term it may not be the best investment decision.  If I do purchase shares, I will only devote a small amount of capital to invest in MORN.  I believe that over the next few months MORN could return 25% or more above the IPO price, but there will be pitfalls.  I could be wrong.  For one, the market has been soft lately.  Many IPOs since Google’s have not done well.  Secondly, this IPO is highly anticipated, meaning that many investors will bid the price up.  MORN will likely debut at $19/share, the high end of its price range.  Thirdly, IPO stocks tend to dip a few days after IPO and can be purchased at a cheaper price than at IPO.  Fourth, Morningstar is not Google.  Its investment ratings system is an industry standard, but it is not a high-growth or tech stock like Google is.  Morningstar is also unprofitable, although it could be profitable in the coming years.  Much of the hype surrounding this IPO lies in the fact that it is a recognizable name using an unorthodox IPO method popularized by Google.  Fifth, Chief Executive Officer Joe Mansueto will still own 78% of the company after IPO and will have firm control over it.  He could nix any mergers or buyouts.  Lastly, Morningstar must also comply with a Securities and Exchange Commission probe currently underway and may face fines for impropriety. 

 

Still, here is why I believe Morningstar will be worth the investment.  For one, popular IPOs have done extremely well over the past year since the IPO market began to heat up again.  I also did well with DreamWorks Animation.  I missed out on the IPO but purchased shares on a dip the following week.  In addition, MORN is an industry standard in the financial sector, a sector with high growth potential.  In an age when investment banks must set up independent research houses to comply with terms of settlement reached with New York Attorney General Eliot Spitzer, Morningstar will shine.  Banks will have to buy independent research and will rely increasingly on Morningstar research and ratings.  The Dutch auction IPO will also ensure a fairer price for Morningstar, so the stock will not be substantially overvalued after IPO.  Finally, Morningstar will be a small cap stock with plenty of room for growth.  By contrast, Google’s market capitalization is already $56.20 billion, 83 times larger than Morningstar’s will be at IPO.

 

I am bullish on a few upcoming IPOs.  I would love to buy shares of investment bank Lazard, which will soon go public through a traditional IPO.  There are rumblings that the New York Stock Exchange will pursue an IPO in the future.  To that I say, “Buy, buy, buy!”  If no-frills classified web site Craigslist ever goes public, I would stand in line all night waiting to buy shares.  However, these will be traditional IPOs, and small investors will not have the opportunity to buy shares at IPO.  I prefer getting in on the ground floor with a company like Morningstar.

Remembering the weekend

Work today was better than it was last week, but it was still very hectic.  I’d much rather talk about what happened last weekend.  On Friday evening, a colleague and I went out for drinks in Itaewon.  By day, Itaewon is a tourist haven where you can pick up all sorts of kitschy Korean souvenirs.   By night, it becomes one of the crazier hangout places for foreigners in Seoul.  I stood in front of Don Valley Korean restaurant and Burger King, two places I’d seen during the day, and was amazed at nondescript they looked, overshadowed by the glow of the blazing neon lights of the clubs and other establishments.  By day, the nighttime establishments are ne’er to be seen; by night; they mysteriously appear and give Itaewon a seedy appearance.  Of course, because Itaewon is close to a military base, it’s filled with all the good, bad, and ugly that you can find—everything a GI could want.  Military patrolled the streets to make sure that none of the GIs were misbehaving.  We went to a trendy bar called “Helios,” one of the more reputable establishments in Itaewon.  Watching the Los Angeles Lakers on the big-screen TV was very exciting…not.  The Guinness draft and pistachios were fabulous, though.  I can’t complain—the Guinness beer made it thousands of miles from England and still tasted fresh.  You might be asking, “Is Itaewon some sort of Red Light district?”  Well, yes and no.  It has brothels and plenty of seedy establishments.  However, it’s also a foreigner’s mecca.  Itaewon, for better or worse, is where many of the foreigners hang out at night and do whatever strikes their fancy.  Churches and fast food restaurants lie adjacent to night clubs and hostess bars.  Foreigners shop at the street-level souvenir vendors or head upstairs or downstairs for illicit activities.  Barber shops cut hair and often offer other “services” for an additional price.  Such is life in Korea—sometimes the obvious isn’t really what it seems.  There are more upscale districts such as Gangwon and Apgujeong, but they’re south of Han River and much further commute for me.  Itaewon is a convenient place to go for a drink on a Friday night.  It’s also much cheaper. 

 

On Saturday, another colleague and I drove to Icheon, an exurb of 180,000 southeast of Seoul.  Icheon is the ceramics capitol of Korea.  I am not a big fan of ceramics, but on a rainy day our travel options were limited.  Saturday’s weather was miserable, cold and rainy.  Friday was beautiful, and so was Sunday.  Saturday was an anomaly.  I should have waited for better weather, but I was determined to get out of town.  After being cooped up in Seoul for almost two months, I was ready to see a little more of this Indiana-sized country.  The drive to Icheon reminded me of central Pennsylvania.  The hills and deciduous forests are reminiscent of the Appalachian Mountains, and the freeway at times hugs the hills, cuts through them, drives over them, or tunnels through them.  The drive also reminded my trip to Western Europe during the summer of 1998.  I recalled the trip my wife and I took through France and Italy on our way to Austria.  On our way to Icheon, we passed by dozens of high-rise apartment complexes.  Urban planning in Korea apparently extends far beyond cities.  Rural Korean residents seem to be content to cluster together, cutting down on the suburban sprawl common in the U.S.  The rain subsided once we arrived in Icheon.  Nonetheless, we were disappointed by Icheon.  The ceramics and pottery were gorgeous, but I had no interest in spending hundreds of dollars for large, breakable ceramics that probably would not survive a trip outside Korea.  My colleague and I visited the future site of the World Ceramic Biennale 2005 in Icheon.  The site is gorgeous!  It sits on a hillside overlooking a lake and the Icheon skyline.  It features many unusual ceramic sculptures.  However, the Biennale doesn’t open for another two weeks, so not much more was available to view.  If you like ceramics and pottery, I recommend visiting Icheon.  You can also visit Everland, the Samsung amusement park not far from Icheon, and the nearby Korean Folk Village.  Any of these three destinations would make a good family daytrip.

 

On Saturday evening I went to a house party hosted by one of my colleagues.  It was fabulous!  He was a great host, and fun was had by all.  I felt like Will Farrell in the movie “Old School”—the family guy reliving the ol’ college party days (unlike the movie, I did not streak down the street).  We danced and drank and sang, and we ended the night with a little hookah.  Hookah is a special type of smoking prevalent in the Middle East.  In the U.S. it’s a trendy thing to do and is popular in California, Michigan, and on the East Coast.  My wife and I first tried hookah while visiting Fishawi’s Cafe in Khan al-Khalili in Cairo, Egypt in 1998 (Khan al-Khalili, Cairo’s most popular market, is the site of a recent bombing that killed several foreign tourists).  Last year, I occasionally joined colleagues for Hookah Night in Washington’s DuPont Circle.  I don’t typically smoke, but I do on a cultural basis when the situation presents itself.  I prefer not to smoke, but smoking can be an important part of truly experiencing a culture (as is eating exotic food).  I particularly enjoy hookah because it involves filtering smoke through water before inhaling.  The tobacco is also flavored and has a pleasant smell and taste.  On Saturday night I enjoyed passing around the hookah pipe and chilling out with other party guests.  Smoking hookah and drinking Turkish coffee is one of life’s little pleasures.  I do not advocate taking up smoking–act sensibly and partake when the cultural situation encourages it.

 

By Sunday I needed to recuperate from the previous days’ events, so I stayed home and rested.  I ran some errands and met with some friends for a quiet dinner.  Although I enjoyed the parties and travel immensely, I prefer spending most of my time in peace and quiet and socialize from time to time.  Being solo in Seoul has given me a chance to do things I don’t normally do, and I’m making the most of it.  And no, my wife doesn’t mind at all.

Readers respond

My weekend was very eventful.  I will write more about it tomorrow night when I have more time.  Suffice it to say, I was so busy that I missed writing my blog last night.  I’ll make up for lost time tomorrow and will tell you about my trip to Icheon and a few fun get-togethers.

 

BJJ, you asked what I do for a living that makes me so tired.  Thanks for reading.  It’s a really good question.  I can’t say exactly what I do, because some people are very savvy online and might be able to pick me out in a lineup by reading my blog.  That’s especially true in Korea, the most wired nation on earth.  Sometimes I seem vague when I blog, and I haven’t posted any personal photos online.  I try to blog my thoughts as much I can without posting any personal information that could make my job harder.  There is a popular Korean web site where Koreans talk about my colleagues, give us easy-to-remember nicknames, and try to figure out what they need to do when they meet us in order to get what they want.  Some of the nicknames are hilarious.  The tell-all web site offers tips and suggestions and tries to help visitors influence the system.  I try to avoid giving away too many hints and clues about myself online so I don’t inadvertantly give anyone an unfair advantage. 

 

At work I interview many, many people every day.  I typically interview about 150 people per day, sometimes as many as 200.  I talk to them, ask them questions, hear their stories, and figure out if they’re qualified applicants.  I have to make decisions based on their applications and the answers they give me.  I must quickly make decisions that affect their future.  I take each interview very seriously.  I owe it to the people I interview to do a good job.  I really enjoy my job, but at times it can be exhausting.  Interviewees come from all walks of life, so sometimes I have to do mental gymnastics to conduct interviews and arrive at a decision.  Last week was exceptionally difficult because we were going through some upgrades in the office that interfered with our workflow.  Our workload is also increasing, putting some strain on our operation.

 

It looks like I need to post a couple of corrections to a previous posting.  Astute WorldAdventurers reader Wade3016 pointed out that I incorrectly posted two critical dates in Pope John Paul II’s life—his election as Pope, and the assassination attempt on his life.  Wade3016 is right.  He was elected Pope on October 16, 1978, the first non-Italian pope in 455 years.  He was injured on May 13, 1981.  Now that people are reading my musings, I need to make sure I get my facts straight!  Thanks for the catch, Wade3016. 

 

From the “Things that Make You Go…Hmm” Department:  MSN Spaces is no longer in beta phase.  Microsoft wisely decided to officially launch MSN Spaces.  That’s great news.  I’m surprised the change happened without fanfare.  I wondered whether the Redmond giant would pull the plug on its blog experiment or officially launch it as a free service.  Unfortunately, MSN Spaces is running slower now than it did when it was in beta.  I suspect that the techies in Redmond are busy working behind the scenes to upgrade servers and add storage capacity.  I wonder whether Microsoft will eventually charge for this free service.  It may have to if MSN ever hopes to make money.  Although Microsoft tends to bundle free add-ons into its products (e.g. bundling Internet Explorer with Windows), it could start charging once it gains a captive audience.  I hope not.