From: coop@sybase.com (John Cooper)
Newsgroups: misc.invest
Subject: Re: snapple IPO
Date: 1 Jan 93 18:52:16 GMT
Organization: Sybase, Inc.

In article <1992Dec18.175314.10123@colorado.edu> wouk@alumni.cs.colorado.edu (Arthur Wouk) writes:
>In article <UfA99Yi00iV1A1Kgp1@andrew.cmu.edu> Joel Bloch <jb6k+@andrew.cmu.edu> writes:
>>There was an interesting news item on the Snapple IPO that illustrates
>>the problem small investors have with IPOs. CNBC said that institutional
>>investors got all the stock and traded it among themselves until it
>>reached $28. The public got in at 28$ and drove the stock to $33. Then
>>there was more dumping and the stocking went down to about $28-29. That
>>means all the institutional investors made money and few of the public
>>could unless they got in and out between $28 and $33.
>
>this is not a new phenomenon....
>
>after the heated trading period is over, many such ipos drop back to
>original price or lower. a bit of patience is rewarded by a chance for
>whatever long term profits there are in the ipo. (as i recall the sun
>micro ipo, a few years ago something like this happened. anyway, since
>the market didn't undertand what sun was doing, there was a long
>period after the ipo for long term investors.)


I imagine that the above advice depends on your definition of long term.

I bought Sun Micro the day of its IPO, in Q1 '86.  I was, of course, only able
to get the market price after public trading started -- that is, somewhat up
from IPO price, in the equivalent of the $28-33 period above.  But I wasn't
after immediate profit, and held onto the stock for roughly nine months.
Nine months to me is not long-term unless one is a very heavy trader.  Anyway,
for my "patience" I made something like a 60% profit.  Of course, my profits
were nothing compared to what I would have made had I held much longer, but if
all my gains over nine months were this good I'd be more than satisfied.

I have made profits greater than both the overall market and inflation on two
other IPOs by holding for part of a year.  I have never lost money on an IPO,
which is more than I can say for my other investments.  Once I placed a buy
order on an IPO whose stock stayed within a couple of points either side of its
first day's closing price for the next three or four months until I stopped
following it.  However, my buy order was for a price in between the actual IPO
price that the institutional investors got and the first public trade, and was
therefore never executed; I have no regrets. 

If you know where to look, and you're not after nearly immediate turnaround,
IPOs are often good investments.  The trick is not to just blindly buy every
IPO that comes out, and not to automatically agree to market price.  Stay with
companies whose products or markets you know, and read your prospectii.

Also, look at the track record of the underwriter.  Some put a lot more IPOs
to market with good futures than others.  This is not luck, either -- there's
a real art to knowing how much to price an IPO at.  Just like fund managers,
some underwriters are much more savvy than others as to where the market sits.
No underwriter has a perfect track record, of course, so if you go this
strategy you'll want to buy many IPOs to hedge against the losers, which can
get damn expensive (too much for me).  And as I said, you have to be willing
to hold a year or more.  But with some study, I think you can handily beat the
market this way.

--
John Cooper                               | My opinions, may not be employer's.
Sybase, Inc.                              |
                                          | "If you don't like the news go out
sybase!coop@sun.com                       | and make some of your own."
Newsgroups: misc.invest,misc.taxes