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Did You Get Screwed In An IPO?

[heading]Did You Get Screwed In An IPO?[/heading]

USA TODAY reports that regular joe schmoes of the investing world are getting screwed on the crashing value of recent IPOs. Privileged investors, who enter into the shares early, are contrarily winning big.

There have been 41 initial public offerings in the last year, with stocks such as Twitter, Noodles and Sprouts Farmers Market taking their businesses public. In each of these cases, privileged investors who bought shares at the so-called offering price are sitting on massive profits. Most individual investors, however, are suffering massive losses.

An IPO’s offering price represents what value the clients of brokerages and large institutions and investors paid the day before the trading started. One of the biggest examples from 2013 was the Twitter IPO in November at $26 per share. Investors that got in at the IPO price have gained 23%. Those that jumped in and paid the first-day closing price of $44.90 are down nearly 29%.

These aren’t just a few “bad apples.” This is systemic to the entire IPO market. Investors who were in early at the offering price of the 242 initial public offerings sold over the past year are up 12.3% from their entry price, according to USA TODAY.

Individuals who got in after the large institutional buyers, however, who typically purchase IPO shares after they’ve begun trading, are down 3.1% on average.

Let’s take foods seller Sprouts Farmers Markets, whose shares sold to early investors on August 1, 2013 for $18 a share. These investors are up 46%, while the “commoners” who paid the first-day closing price are down 34.5%. And then there’s Noodles, a fast n’casual restaurant with 394 locations.  Noodles sold its shares to privileged investors on June 28, 2013 at $18 a share, and those investors are up 75.2% from that initial price. Investors that jumped in paid the first-day closing price of $36.75, though, are down 14.2%.

As USA TODAY reports, “The IPO market has become a hostile place for investors as of late, serving up a brutal reminder that shares of newly public companies are not for inexperienced investors.”


This trend should not surprise you. Academic research has long demonstrated that individual investors that are late to the IPO suffer sub-par returns. One researcher found that individual investors are best off waiting at least six months after a new stock begins trading before investing in it. By that time, the shares have a chance to fall.

Presented below are 10 recent IPOs where investors who bought at the offering price enjoyed whopping gains, while investors who bought at the first day lost out:

Stock Symbol % Ch. from offer price % Ch. from first-day close
Noodles NDLS 75.2% -14.2%
Autohome ATHM 70.6% -3.6%
Ultragenyx Pharmaceutical RARE 66.3% -17.3%
Qunar Cayman Islands QUNR 63.5% -13.6%
Xencor XNCR 51.3% -0.2%


The stock market is like walking into a Vegas casino. You’re an outsider, and the numbers are not in your favor. It is similar to gambling, putting money in the stock market. Why go that route when you can look towards precious metals, which have shown considerable gains in the last ten years. The premise of this appreciation makes sense, too. With all the money printing by world governments, the value of fiat is going down. Why the stock market is at all-time highs is a bewilderment. The only sensible explanation is that it gains from ongoing money printing. But, the thing is, if the US dollar continues to lose value, you might have stocks, but these must be turned in for US dollars.

With gold, silver and bitcoin the story is different. If you got screwed in an IPO, these might be perfect for you.

If you insist on putting money in the stock market, that is your choice to make. But, keep in mind that there are ways to insure your gambling habit: gold, silver and bitcoin could be the perfect solution when it comes to financial wealth insurance.

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