IPOs, or initial public offerings–when a private company raises money on the stock market for the first time–are in their third season of record highs: investors are expected to shovel at least $50 billion into these issues this year, up from $10 billion in 1990.
But if those numbers sound out of control, they should. IPOs, especially of companies that make familiar products, are tempting to the average investor. It’s fun to go buy stock in a Snapple because you know the product. But the trust-my-taste-buds investment strategy leaves out a few crucial details, like whether a hot new competitor is just about to invade. IPOs also run by different rules: institutions, not you, usually get first dibs on the stocks the day they go on sale, when they’re underpriced.
Hence the paean to Karan. Karan, a trendy women’s clothier, said the company wouldn’t do its long-anticipated IPO, primarily because business just hasn’t been that good lately. Karan probably did its loyal followers a favor. Consider MathSoft, a mathematics-software developer, which zoomed to $23 after its opening last February at $13, but closed Friday at $6.625. In a market marked by little more than bear-market fears, IPOs are the best show in town. just stay off the stage.
