newmillenium, thank you. I wish you the same. Here's some reading material regarding IPOs.
It's question-and-answer time
How to navigate the renewed interest in IPOs
By Darren Chervitz, CBS MarketWatch
Last Update: 7:38 PM ET Nov 24, 1998
SAN FRANCISCO (CBS.MW) -- Any doubts about whether the IPO
market has returned can be dispelled with one look at my mailbox.
Ever since the explosive first-day debuts of
EarthWeb (EWBX) and Theglobe.com (TGLO),
I've received e-mails on a daily basis from readers
wanting to learn about the IPO market or about
the specifics of a particular new deal.
"Have you heard anything about the IPO of
Infospace.com? When is the release date?"
queried one. Asked another about the uBid deal:
"I want to buy this fabulous IPO. Where can I get it? My stupid broker
doesn't have it."
I'm always happy to get e-mail from readers, but this latest surge of
inquisitiveness bothers me a bit. Many people seem unaware that the
investors who profit the most from a hot IPO are the institutional folks who are able to buy the shares at the offering price. Most individuals have to wait until the stock starts trading on the open market -- usually at a substantial premium before buying shares.
Of course, many of the investors fortunate enough to buy stock at the
offering price don't want you to know that IPOs over time significantly underperform the broader market. They want you to get caught up in the hype associated with an IPO so they can flip their allocation and pocket an immediate and nearly risk-free profit.
To be sure, individual investors benefit indirectly (through mutual funds) from profits secured by institutional money managers, at least a few of whom are also buying in the open market on the first day so they can add to their allocations. Plus, many of this year's hottest IPOs have risen well above their first-day closing price such as eBay and Broadcom (BRCM).
But from the roadshow that is closed off to regular investors (and the
media) to the allocation process, the game of IPOs is designed to benefit the rich few at the expense of the naive many. See earlier story.
Anyway, without further ado, it's question-and-answer time. By the way, the answers to the two questions above: Infospace.com is expected to price on the week of Dec. 7, and Wit Capital has (or at least had) an allocation of the uBid IPO, which they give out to on a first-come,
first-serve basis. Wit Capital partners include Waterhouse Securities and Datek.
Q: I enjoyed your story on Internet stocks and I'm currently
tracking [Internet America], Xoom, and hoping that they will do as
good as eBay (EBAY) and TheGlobe. I really called the one on the
TGLO!
Do you think the Internet stocks will reach their full market value
in the coming months or will they keep moving up for the next
couple of years? Nael, Chicago.
A: Nael, like many others, I've been screaming about valuations in the
Internet space being too rich for a long time, and have watched these
stocks move higher and higher. The conclusion I've reached: Valuations in the sector are a result of a severe supply and demand imbalance and
nothing more. The float, or the number of shares available for trading, cannot keep up with demand, and momentum players sitting in front of their computer screens are taking full advantage by pummeling in the buy orders.
You can try to justify the prices all you want using somewhat sound
arguments (i.e. the Internet is a revolutionary phenomenon, the fastest growing mass medium of all time and the pioneers in this space will have numerous advantages over traditional competitors, yada yada yada.)
The fact is, few of the valuations out there make sense to me, given all that could go wrong in the next few years. And it's obvious the fundamentals have very little to do with the recent movements.
Some Internet stocks still seem reasonable, at least on a relative basis, but I'd frankly be paralyzed by all the volatility, unsure if the cheap ones will rise or the expensive ones will fall.
Of course, this leaves a huge dilemma for more cautious, buy-and-hold
investors. Not investing in the Internet doesn't seem smart, but many of the probably winners in the space seem way overextended.
Believe it or not, I'm kind of thankful I'm not allowed to invest in Internet stocks (since I frequently write about them). Now I can justify being on the sideline without feeling stupid.
Q: Hello! My name is Liliya. I'm individual investor. Seven years
ago I came from Russia and I didn't have any idea how to invest in
stock market. Since 1996 I started to invest my money. If it's
possible can you explain for me how can I find out what company
will go public and when?
A: Liliya, thanks for writing. First, let me say that the IPO calendar is always a moving target. Most deals are slated to come to market during a certain week, which can often change, and the exact day isn't usually set until the last moment.
That said, there are a number of sites on the Internet with accurate and comprehensive calendars of upcoming new issues, including IPO.com,
IPO Monitor, IPO Data Systems, Alert-IPO, Renaissance Capital, and
IPO Central. Some are free, some cost a bit. I personally use IPO
Central and Renaissance Capital a great deal.
Q: On Nov 18, you made a quote about first day trading of IPO's,
"Unfortunately, investors see new stories about companies going
up eight times on their first day, and that remains in their minds,
even though these stocks have fallen a lot," Tuen said.
TheGlobe.com for instance opened at the opening price of $9. I
wanted to buy it at this price, but couldn't. Who can? Can I, or you?
Who is making this money? By the time I could buy it from a
broker, it was at $90. So making money on the first day from an
IPO doesn't make sense for me. Appreciate your response.
Sincerely,
Paul Zemanek
A: Great question, Paul. Again, most of the people who are able to buy an IPO at the offering price ($9, in the case of Theglobe.com) are
institutional investors who participate in IPOs to boost returns of their mutual funds. While the bankers hope a few of these investors will be long-term shareholders, adding to their stakes after the stock starts trading (at $50, in the case of Theglobe.com), most of the initial purchasers are just looking to flip their stock for a quick buck. Of course, this only works if there are others who want to buy at the higher levels -- the game fails quickly if a deal doesn't have aftermarket support.
Lately, individual investors have been getting small allocations of IPOs, even of hot deals, thanks to efforts from online brokers like Wit Capital and E-Trade (EGRP). But even in these cases, the playing field isn't fair. Investors are usually discouraged from selling their allocations until after the first few weeks of trading. While no one can stop you from selling, Wit Capital tacks on an added 5-percent charge for flipping. Both Wit and E-Trade say flippers won't be given allocations in future deals.
Because of all the hype associated with an IPO and because of the
enormous selling effort employed by the syndicate of investment banks
handling the deal, investors should avoid buying an IPO on the first day of trading. The stock will likely fall to a more appropriate level sometime within the first six months of trading. Even eBay fell to the low 20s before zooming up and away into the stratosphere.
Q: I never heard of EarthWeb when I bought it at 50 and I still
didn't know what they do when I sold it at 71. But you know what, I
don't care because it is easier to paddle a canoe down river than it
is to paddle up river. I don't fight the tide and I don't care about the sucker that is long at 71, when he gets his ass handed to him I will be there to go long at 31! By the way I love your writing!
P.S. I made $21,000 in less than 24 hours. Its Miller Time!
A: Congratulations (though being born and raised in St. Louis, I'd rather you cracked open a Budweiser)!
This reader was obviously someone who's a risk taker and understands
the dynamics of IPOs. Absolutely, money can be made in the IPO
market, even on first-day trading, but it's a dangerous strategy for beginners and one I don't recommend.
|
