Ask a Fool: Is Investing in IPOs a Good Idea?

Unless you have a long time horizon and a high level of risk tolerance, the answer is generally no. Initial public offerings, or IPOs, can be rather volatile in their first few months of trading.

Just to name a few recent examples, Snap went public in March 2017 for $17 per share, and now trades for around $13. Meal kit delivery service Blue Apron issued its IPO in June at a $10 share price, and it's dropped by nearly 40% in a little over a month. On the other hand, real estate company Redfin priced its IPO at $15 just over a week ago, and its stock has nearly doubled in price.

The point is that after its IPO, a stock's price can move dramatically. Sure, many IPOs double just weeks after going public, but others get cut in half or more. Shares of Groupon, for example, dropped by nearly 90% in its first year as a public company.

Source: Fool.com