Forget Pumpkin Spice -- It's IPO Season. But Are They Worth It?
Fall is upon us, and pumpkin spice-flavored everything is rolling in like a cool breeze. Despite their ubiquity, $5 coffees have taken a backseat to IPOs this fall as investors have lined up for a chance to buy shiny, newly-minted public companies. Many companies have debuted to hungry investors ready to scoop up shares at any price. Fanfare aside -- do IPOs deserve a place in your portfolio, or are you better off just sticking to lattes this season?
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An Initial Public Offering (IPO) is when a company chooses to sell shares on the open market so that regular investors -- such as us -- can become partial owners. IPO day is exciting, particularly because a lot of money can be made incredibly quickly. For example, newer investors may see the initial pop of recent IPO Snowflake (NYSE: SNOW) as a quick way to realize over 100% gains in a single day. Investors in IPOs may be looking for a fast return, or they may know a lot about the company and be willing to buy it at any price for the opportunity to get in early. It makes a lot of sense that investors are willing to dive in on day one if they believe they have a shot to buy the next Amazon (NASDAQ: AMZN). However, the short-term allure of IPOs frequently becomes a trap for retail investors, as institutional traders can heavily bid up the stock price.
Source Fool.com
