The Only Way to Do Well with an IPOMarch 25, 2019
Never chase an IPO out of the gate.
Oftentimes, it’s the little guys that get left holding the bag. Out of the gate, smaller investors will scramble to buy. Demand will outweigh supply.
All the while, average investors buying this IPO could be left holding the bag for a company that is not looking to dramatically increase sales, which greatly limits future growth.
A company may have a great first day. Early investors may think they’ll hit it rich.
But that’s not often the case.
Levi Strauss (LEVI) may have come out of the gate strong with a 35% move above its IPO price, for example. But it may be too rich at current levels. And there’s no guarantee the company can continue to deliver strong earnings growth.
Instead, the best way to trade an IPO is with the First Trust IPO Index Fund.
The FPX tracks hot IPOs in their first 1,000 days of trading. By buying it, not only can you avoid paying gobs of money for IPOs that may or may not work out, but you’re also being exposed to multiple hot IPOs at the same time at lesser cost.
Even with some of the most obnoxious IPO failures, the ETF managed to run from a 2009 low of around $11 to a recent high of $75. It’s a safer alternative than risking your hard-earned money to another potential flop. With the FPX, it doesn’t matter if the stock is hot or a dud, the excitement surrounding IPOs continues to send the FPX to new highs.