Sunday, December 22, 2013

IPO Supply and Demand

We all can see that the IPO market is better than ever. 
Many companies are going to huge premiums. If you are an IPO investor, and even if you are not, do not you want to get in on this gravy train? it is like free money, right?
Buy in the IPO and flip in a few days for a 50% profit!!
This starts an investor stampede into IPOs.
I recall one year when the IPO market was in frenzy I got a call from an investor unknown to me and referred by one of my clients. He screamed into the phone, demanding I put IPO into his account. When i asked him what he was looking for, he said he did not care, he just wanted "IPO."
Naturally, I knew the end of that initial public offering bull market had been reached. 
What you then see is a ton of companies filing for public offerings with the SEC. The glut comes to market and soaks up all the money for IPOs. The result is soft prices, offerings going below the offering price, and eventually hurt investors not interested in public offerings for the next few years until the cycle turns and the game is on again. 
Is that happening how? There are now over 50 tech companies, 50 consumer products companies and 30 health care firms filed for IPOs.  The healthy premiums in a number of recent deals, e.g. Twitter, which went up even more after jumping to a huge first day premium, cause investors to salivate with greed. 
Maybe not in January, but certainly 2014, the wave will crest and the market will peak. 
Investors and investors are well advised at some point to take their winnings and head for the beach, leaving the game to shorts.
It is a cyclical business. 




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