Friday, June 17, 2011

These IPOs Are Just Too Exciting For Me

There's been a lot of buzz about social-media companies offering shares of their stock to the public.
So much news is generated by these initial public offerings from companies like LinkedIn (LNKD), Pandora (P) and Groupon, that I hear people who don't even trade stocks asking how they can get in.
I wouldn't touch one of these IPOs. At least not anytime soon. Sure, I'll miss out on the buzz and the chance to hold a piece to the next big thing.
But I like to keep in mind, when it comes to investing, boring is often better.
History is on my side here.
The most popular IPOs often fall flat on their faces over the course of a a few months or a year or two.

Back when (PCLN) came onto the market back in 1999, it quickly shot up to a price of more than $974 a share, doubling off its initial price in just a couple weeks. It promptly fell back down to Earth, however, and within two years, it was trading for a measly 8 bucks.
Priceline is now a consistent earnings producer with growing profits and widening margins. But it took many years to establish itself as such. Investors who could not wait paid a dear price.

That's reason to cringe over all the excitement about the LinkedIn IPO. Its shares were quickly selling for more than $102, even though the company has yet to establish any record of earnings.
Now that it has come down to about $65, investors are still left asking: Is it now a bargain, or still wildly overvalued? Who's to know?

Take a look at some of the charts from some popular recent IPOs as investors try to determine what their shares should be selling at:

First is Demand Media (DMD)

Now, LinkedIn

General Motors (GM)

Motricity (MOTR)

I don't know about you, but none of those high-flying IPOs look like they've made very good investments to me.

That's not to say these companies won't someday make good investments. But why not wait until they establish themselves and you can see for yourself what kind of earnings these companies can produce over time?
Those who took a wait-and-see approach on Priceline would have avoided catastrophic losses in 2000 and 2001, then picked up shares years later and rode them to terrific profits.

Good things often come to those who wait.

Have you invested in an IPO? What was your experience? If not, would you?


  1. Something wrong here. DMD and GM are identical.