U.S. News & World Report – August 8, 2019

This article explains why most investors should probably ignore IPOs. In the article David Schneider explains that unless someone is a big client at a brokerage firm, average investor can’t buy at the IPO price, stating that “allocations of hot IPOs are not in the cards for mere mortals,”

He also advises that those who do get a small IPO allocation won’t receive enough shares to have it make a significant financial impact for them and that if one can get a meaningful allocation to an IPO, that can be a red flag, stating that “it means that the institutions passed on it”.

Citing a recent study from Dimensional Fund Advisors, he also points out that “generally speaking, it doesn’t look like IPOs do particularly well relative to other stock market investments when you control for relevant risk factors.” He also notes that waiting to buy until after the customary 180 day lockup and the selling that follows may make sense since “you can make a sober decision as to whether or not this is something you really want to invest in rather than doing it in the sort of frenzy and volatile trading after initially comes public.”

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