Investing in IPOs, Version 2.0 - Hardcover

Taulli, Tom

9781576600467: Investing in IPOs, Version 2.0

Hardcover

ISBN 10: 1576600467 ISBN 13: 9781576600467

Publisher: Bloomberg Press, 2001

A text analyzing IPOs and giving the reader strategies t for spotting the best sources of IPO intelligence and market research and developing strategies for investment. Also shows how to recognize risk factors, and how to investigate management and underwriters.

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About the Author:

Tom Taulli has his own firm, Taulli Research, which provides research services to the financial industry. The author or coauthor of several books, including "Tapping into Wireless," "Investing in IPOs,"" "and "Stock Options," Taulli is a regular contributor to MSN Investor, "Bloomberg Personal Finance," Forbes.com, and other national publications. An accomplished angel investor, his comments and insights have appeared in "The Wall Street Journal," "Barron's," "USA Today," and TheStreet.com.

Don't let the numbers scare you away— by summer 2000, the IPO market began to roar back. And the lesson learned is that it is now more critical than ever that before investing in IPOs, you need to do your homework.

It's a fact that IPOs make one of the best places in the financial markets to find huge gainers. There's enormous upside if you can manage to pick the winners at the right time. Yes, it's a tricky and risky feat— but this book was written to bring investors closer to solving the puzzle.

You may have heard that IPOs are allocated first to wealthy individuals and institutions. It's true; those with a large capital base typically have first pick of IPOs. This is the case with any type of investment, even though the situation is changing as the Internet brings us all closer to investment opportunities. But the playing field is not equal yet— being wealthy still carries its privileges.

For example, in 1995 Michael Jordan, the star basketball player for the Chicago Bulls, was able to purchase 217,392 shares of the Oakley IPO, because he endorsed the company's sunglasses. Then there was Demi Moore, who was the recipient of about 650,000 shares of the Planet Hollywood IPO at the offering price. (This turned out to be not as good as it sounded. The company eventually went bust.)

However, with the emergence of the Internet, individual investors are starting to participate more and more in IPOs. For example, Wit Capital allowed investors to participate in the IPOs of Internet Capital Group (ICGE) and Nuance Communications (NUAN). WR Hambrecht made it possible for its subscribers to buy shares in Sonus Networks (SONS) and Digital Think (DTHK). Some opportunities are there for the taking.

Also, you don't need to invest on the first day to make money in IPOs. For example, the institutions and wealthy individuals that purchase IPOs usually do so to generate a quick profit. This is known as flipping. While a one-day 50 percent or more profit is tremendous, you may be missing out on much more upside still to come. Consider those investors who flipped the Microsoft offering. Of course, they have regretted it ever since.

Successful IPO investing involves being patient. The only way to get rich overnight is through the lottery or inheritance. Besides, short-term investing is a game for professionals, who have the time and resources to devote their life to investing. Playing against them is very dangerous to the survival of your portfolio.

However, being an individual investor also has many advantages in the IPO world. Since the IPO market consists mostly of small companies, much of Wall Street will probably ignore these newer companies. Wall Street likes covering the big players, such as Microsoft, Exxon, and IBM. Normally an IPO has but a few analysts covering it (and in some cases, none). This gives the individual investor an edge, since the IPO stock may not fully reflect what's happening to the company.

Another advantage to investing in IPOs is that analysis is much easier. It does not take as much work to study a small company, which may have only a few products or services, as it does to understand a multinational company that has its hands in a variety of industries. These factors do not mean that investing in IPOs is simple or that there is a "secret formula" for finding big gains. Rather, it requires a large amount of work. But remember— it is worth it.

Of course, IPOs can be extremely risky. There are many IPOs that have collapsed— the value of some of them has been reduced to pennies. After all, small companies can be adversely affected by numerous factors, including a top manager who bails out or a major customer that goes to another vendor. But this book will help you screen IPOs and decide which opportunities to take and which to quickly and firmly pass by. Investing in IPOs can be a wild ride.

IPOs are unpredictable, but then again, buying the "no-brainer" blue-chip stocks can be risky, too. Just look at the performances of International Harvester, United Fruit, Pennsylvania Railroad, Woolworth's, and Western Union. Let's consider another example: you could have bought U.S. Steel in 1959 for $100 per share. At that time, it was a bellwether. Everyone marveled at it as a symbol of America's strength. It was a company that, when there was a labor strike, would get the attention of the President of the United States. Despite its past prestige, by 1993 the stock was selling for less than $50 per share. Even seemingly super-growth stocks can have stunning losses, such as Oracle's 30 percent one-day drop in late 1997.

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