Buying an IPO

An astonishing number of people don’t understand how IPOs work. Many investors believe that they are really buying an IPO when they buy the stock on the first day of public trading when it opens at $75. Those who REALLY bought the IPO were those who got their shares for $10, well before the public trading began. For the most part, only institutions or A-list millionaire private investors have access to IPOs. There have been a few exceptions, but it’s almost universally ill conceived to buy a “hot” IPO on its first day of public trading. As for those few times when the average investor is offered shares in an IPO before public trading begins, my advice is to pass.

A great rule of thumb on IPOs states: “If you want it, you can’t get it, and if you can get it, you don’t want it.”