OklaBoston (< 20)

IPOs and their cycles

March 10, 2010 – Comments (2)

I'd like to read some comments on ideas I've long held concerning IPOs.

One is that they tend to go through phases which are very predictable, but the timing of which varies enormously from one IPO to the next. 

Phase One could be called the "Honeymoon", when the stock is still very newly public, and naive or dishonest brokers are talking about "getting in on the ground floor".

 Phase Two I call the "Profit-taking" phase, when insiders and others rake in the all-too-juicy profits easily available to them. Buying an IPO during this phase is generally a VERY BAD idea.

Phase Three I call the "True Ground Floor". The stock will be bottoming out well below it's IPO price, at which point continuing to short it becomes the bad idea, unless you have very good evidence that the Company is going to go literally bankrupt. 

It's during THIS phase that going long  can become a very good idea.

Agree or disagree?