Here is something from the bull market report on the IPO.
Correction Last week we said that Data Broadcasting (DBCC) owns half
of CBS MarketWatch. Not true. They own 38%. Look for the IPO on
Thursday, to be priced between $10 and $12, although we think it will
be priced higher. First trade? Anybodys guess!
IPOs EXPLAINED DEPARTMENT
We have received lots of emails about IPOs, Initial Public Offerings.
What are they? How do I get in at the IPO price? Should I buy after
it starts trading? And so on.
An IPO is the sale of new stock to the public from a company for the
first time as the company moves from the private sector to the public
sector. Thus a secondary is the sale of new stock from a public
company.
How is it priced? It is priced in discussion with the investment
bankers who take the risk of selling the shares to the public who want
a low price, and the company that wants a high price. What risk you
say? There is PLENTY of risk. What if the president is killed the
morning of the IPO? What if there is an earthquake in Tokyo? We
exaggerate, but things can happen; thus the risk. So, the bankers
decide the price based on demand and risk. Lately, their job has been
easy, but sometimes they price it too high and take a bath.
How do you get in? Youve got to have an account with the investment
banker that is doing the deal. Morgan Stanley Dean Witter, Smith
Barney, Merrill Lynch and others, do most of the deals. The bigger
account, the better. Little $10,000 accounts dont get the hot IPOs.
BTW, hot IPO is really a term on Wall Street. It means that there
is more demand for the IPO shares than normal and the price will start
trading higher.
Where will the stock start trading? Your guess is as good as mine!
Some that are priced at $14 start trading at $14. Some start at $12;
some start at $18; lately some Internet stocks have started at $30;
$40 and $50 and higher.
Should I buy after it starts trading? It depends on what type of
trader you are. If you are a day-trader, then trade away to your
hearts content. (BTW, most bankers dont want you to or will flat
out not let you sell the stock for at least 10 days.) If you are a
long term investor then do your homework by getting a copy of the
prospectus from the banker beforehand so you know what the whole story
is.
Thats all for now. Good luck in the IPO business, but please be
careful!
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