For all you stock hounds

April 28, 2004
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If you’re hoping to make a killing on the Google IPO, consider these thoughts from a trader pal of mine:

My concern with this IPO is that it’s over-hyped and the little guy will be left holding the bag. No doubt those who get in at the offer price (the price set by the underwriters before the stock trades publicly) will do very well once the shares hit the open market. But my fear would be that the stock opens at a huge premium to the offer price and drops like a rock from there. (Remember what happened to the PALM IPO?) I doubt that Google will be as spectacular as that on the upside or the downside. My guess is that the underwriters will do a much better job of pricing the offering realistically and thus there will be no huge profit that people are panicking to take.

As with any IPO, I wouldn’t recommend buying shares until after the stock’s traded for a while — like a month or so. The underwriters usually initiate coverage on IPOs after 22 days (I think) of trading, so I’d like to see how the stock reacts to their obligatory bullish hype and aggressive price targets. And certainly the first 2 or 3 days are only for daytraders who have the quickest of execution systems and/or those with strong stomachs.

Back during the bubble, companies with no profits and few prospects beyond a bright marketing idea were able to launch IPOs because investment bankers knew that foolish investors would bid the shares up to ridiculous heights, and all who bought at an insanely low offering price would make scads of money. These companies had little say over the offering price because the investment bankers held all the cards; stock IPO prices were way too low, costing companies millions while the bankers & brokers got fabulously wealthy.

Google, however, is a profitable company with a proven business and a global brand. No investment bank is going to force Google to put $60 shares on the market at $20, which means, as my trader buddy noted, that Google’s IPO price should realistically represent the stock’s market value. Day-trading induced temporary insanity will last right up till the moment when the little people like you, me and your mom buy their shares, then they’ll tank.

Google’s a good company and there’s money to be made in its shares; just don’t get it into your head you’ll make back three years of losses in three hours on the first day of trading.

A site called google-ipo.com has news links and a message board with more details.

One Response to For all you stock hounds

  1. paulwiggins on April 28, 2004 at 10:26 am

    I’ve been watching IPOs since Adam was a boy. Caution is correct.