Ride-sharing Lyft company had its IPO a few weeks ago. Other big companies should also be following suit soon. Investors see big chunks of money here. They think they will buy an IPO and ride to unseen heights. The definition of IPO according to the book “The Wall Street Waltz” means that it’s probably overpriced.
Jay Ritter who is a University of Florida lecturer studied the launching of IPOS from 1980 to 2017.
The facts are that after the first launching IPOs trailed the same way as companies by an average of 3.3% during the first five years. As it is common with many speculative investments, a number of winners can make the legions of slackers. Thanks to investment bankers IPOS usually rise out of the gate at a higher rate.
Those people handling the IPO get a lot of money for marketing the sale and getting buyers. The excitement and thought of getting a lot of bucks blind the rational folks.
The party and excitement can go for days, weeks and even months as stories of huge gains are circulated attracting the people who do not like to be left behind.
However, when the party stops the stock often get bashed. For example, even long term winners such as Facebook and Apple had a difficult time after investing with IPO. If you want to gain a lot from IPOs work with the rule that the early bird catches the worm.