“Big money is being made every day it seems on IPOs. How can I get into the action? A recent article in Smart Money paints a somewhat gloomy picture for guys like me with not a lot amount of money to risk. Should I just give up and watch the few people with the right connections just continue to rake in the dough?” — Walt Gunnison

Yep.

But Smart Money or one of the others also had a good story recently about catching these same IPOs a year or two later after, in many cases, reality has set in, original shareholders have sold to take their profits, and discouraging news may even have emerged.

An example from my own life is having been pitched on Compaq when it first went public at 10. Oh, please, I thought — how is it ever going to compete with IBM? And whomever else was out there at the time.

It did go up for a while. But then it stumbled and the stock fell to 3. Which, adjusted for splits, was somnething like 25 or 50 cents. Last year it hit $51. (Needless to say, I wasn;t smart enough to buy it at 50 cents — or short it at $51.)

So one strategy might be to note the IPOs you really believe in, if you’ve researched them. Then keep following them, and wait until the excitement has subsided and they return to more like the IPO price — or even well below it. This obviously cannot be done indiscriminately. But at least you’re buying when people are no longer mesmerized by the stock — perhaps even disgusted with it — and not when they’re participating in a feeding frenzy. And that’s a better time to buy.

 

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