Thread: A little confused about IPO's, and these huge returns...

I was hoping to get some clarification from people who have experience with IPO's on exactly how they work. I've seen a bunch of the techy type companies, LinkedIN, Zynga, Groupon, etc. that have all had IPO's that went up 30-100% in a single day. With the facebook IPO on the horizon, I was hoping to get my slice of the pie, but I'm still a little apprehensive about how things work.

It seems too easy to buy $100,000 worth of an IPO, watch it go up 50%, sell all your shares the next day and walk away with a $50,000 profit in one day. This can't be how it works, can it?

I talked to a few people online in other forums who make posts like "Just put $20k in my pocket, thanks Groupon"

I always adhered to the philosophy, "If it's too good to be true..."

All the money is made before the opening bell, if you get in after the bell it's too late to make substantial gains.

Originally Posted by Forfend

All the money is made before the opening bell, if you get in after the bell it's too late to make substantial gains.

Please excuse my ignorance, but that makes no sense to me. How do you buy IPO before the market opens? Like, if the Facebook IPO is coming out on June 1, how do I buy $100,000 worth on May 31st? Then, would I sell it on June 1st? I'm just very confused about the entire process and how to get in and out.

I'm on my way out but as a quick reply... just know ahead of time what your exit price is and don't be greedy/stick to it. I got in on Visa's IPO and thought it would go up more then it did. I ended up losing a little bit because I tried to "time it." If I had just stuck with my original plan of get in and get out, I would've been fine. This also means you have to be ON IT. Setting up alerts to go to your phone so you can sell immediately if needed or setting a limit order ahead of time.

Also, for those who don't have $50-100k to invest like your example states, make sure you check with your brokerage firm before hand to get the details on getting in on an IPO. Most firms will require a nice size relationship before you can get into these IPOs.

^Not 100% sure, but there are secondary markets and there is before/after hours trading on all of the major exchanges

Ahhh, okay. I've heard of secondary markets (I think) that trade outside of the normal trading hours, which is why a stock's price may be different at open than it was at the previous close. I was going to set aside between 75-100k for this facebook IPO after seeing the Zynga/LinkedIN/Groupon success, but I'm a little worried that I may be in over my head.

Zynga hasn't IPOd yet has it? Last I heard they were gunning for 800m.

Anyhow take the Groupon IPO, it peaked immediately after the opening and hovered all day. The traditional IPO is dead, the markets just rely on them to rally everything else. I guarantee the day Facebook IPOs, the market will be up 5% easily.

Maybe I was thinking of another company when I said Zynga.I know there was LinkedIN, Groupon, and something else. You seem to be pretty well versed in all of this, Forend. What is your advice for preperation of the Facebook IPO? We are talking about one of the biggest companies on the planet going public, I'd like to formulate some sort of game plan, and there seems to be more than enough to go around, so I hope that you don't mind sharing

Secondary markets and after hours are totally different. Secondary markets like Sharepost are markets where employees and investors can sell shares. You have to be an accredited investor to participate. Even if you buy through these markets you still have a lockout period in which you cannot sell so if the stock jumps the first day you are out of luck. Its usually only initial investors or wealthy clients of the IB's that get money out the first day. You could buy the first day and hope the stock keeps moving up like Google. Your $100K investment would have been worth over $500K today and as high as $600K.

Haha, I didn't have $100k to invest when google's IPO was released.

So no chance of buying at the opening of the market, and selling by close that day, huh?