Why Avoid IPOs in the US?


This is an article I wrote to my members back in Nov 2013.

Well it has happened again. A lot of hype, excitement and energy by the brokerage houses over the Twitter IPO (ticker symbol TWTR) much like we had with FB. Of course they are super excited. Who would not be if I was able to participate on the pre-IPO price of $26 (which is where TWTR closed the day prior to the IPO).

The stock managed to go as high as $50 the very next day! It was shy of FB’s high IPO high that day of $45. As we all know FB proceeded to make a low price of $17.55 just a few months later (not too cool if you were the retail investor).

In the case of TWTR, the retail buyer came in at $46-$50 only to see the stock close at $41.65 on Friday. Believe me there will be many opportunities to participate in this stock down the road! Who knows where it may settle before the professionals seek to buy it again.

V (Visa) was another example similar to FB and TWTR. This one was slightly different in that it took three months to attain a high price of $86.96 only to drop to $40.58 in the next eight months. Of course it is now $198 which goes to show that it is best to allow the stock to be traded for a while, enabling us to gain vital fundamental data that capitalizes on the stocks potential going forward.

Of course we are not saying that a stock’s IPO will always cause the stock to go down in price. In the case of MA (MasterCard) you can see that the stock went public in 2006 and was catapulted to $300+ in two years without revisiting their opening price of $39.42! However you can see that the tendency is for the stock to selloff before they settle down.

Best to wait!