Initial Public Offering (IPO): Hot New Issue? You Should Live So Long!

Initial Public Offering (IPO)? "Hot" New Issue?? What are your chances of getting in on the ground floor???

In my humble opinion, somewhere between zero and fuh get about it!

All you need to know about an Initial Public Offering (IPO) is: If it's "hot", you got no chance; if it's not, you can have all you want. Case closed.

Why? Because "hot" new issues are reserved for the firms' "A" list clientele.

Who's on the "A" list? Institutional money managers, wealthy customers, and desirable prospective new clients such as owners of private companies who themselves might be candidates for going public.

In other words, anyone in position to generate big commissions.

By purposely pricing the offering on the low side, they are assured of an upward "pop" when they open it to the public market. That's when they let their friends get out for a nice gain.

The issuing company accepts less capital for going public but they also gain a reputation as a "hot" issuer which the public will remember the next time the company comes back to the market for additional financing.

It also allows the companys' insiders who have to hold their stock for a period of time (called letter stock or restricted stock) before they can sell, to start off with a gain.

If, out of the blue, you're offered a piece of an IPO, chances are the "A" list turned it down and they're trying to unload this puppy on you.

One of their favorite "pitches" is that, if you buy, they won't charge you a commission.

That's really nice of them, don't you think?

Of course, they might not remember to tell you that the "underwriting concession", which is built into the offering price, is already ten times larger than the commission they usually charge.

That's right, ten times as much profit! Why else do you think they love a good juicy Initial Public Offering?

Because No One Cares More About Your Money Than You

By Don Heggen | This article was posted on 2007-06-20 21:44:45

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Definition:

A company's first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept very large risks for the possibility of large gains. IPO's by investment companies (closed end funds) usually contain underwriting fees which represent a load to buyers.

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