Wednesday, 5 September 2012

THE STOCK MARKET


A look at how some IPO stocks have fared
(IPO - Initial Public Offering, commonly known as a new float)
By The Associated Press | Associated Press 
Facebook founder, Mark Zuckerberg launched the
company as a 19 year-old at Harvard University


Facebook's public debut was the most anticipated tech IPO since Google went public in August 2004. But the stock has lost much of its value since it began trading in mid-May.
Below is a look at how the stocks of some recently floated public companies are faring. The companies are all loosely Internet-related, though their businesses vary widely.

— Facebook Inc., social networking company, first day of trading on May 18, 2012
Pricing: $38 per share
First-day's close: $38.23, up 0.6 percent from IPO price
Tuesday's close: $17.73, down 53 percent from IPO price
Trading range since IPO: $18.03 to $45 (before Tuesday)

Yelp Inc., developer of online games, first day of trading on March 2, 2012
Pricing: $15 per share
First-day's close: $24.58, up 64 percent from IPO price
Tuesday's close: $24.25, up 62 percent from IPO price
Trading range since IPO: $14.10 to $31.96

Zynga Inc., developer of online games, first day of trading on Dec. 16, 2011
Pricing: $10 per share
First-day close: $9.50, down 5 percent from IPO price
Tuesday's close: $2.83, down 72 percent from IPO price
Trading range since IPO: $2.66 to $15.91

Jive Software Inc., creator of tools to run social networks for businesses, first day of trading on Dec. 13, 2011
Pricing: $12 per share
First-day close: $15.05, up 25 percent from IPO price
Tuesday's close: $15.30, up 28 percent from IPO price
Trading range since IPO: $14.18 to $28.15

— Angie's List Inc., consumer-reviews site, first day of trading on Nov. 17, 2011
Pricing: $13 per share
First-day close: $16.26, up 25 percent from IPO price
Tuesday's close: $9.63, down 26 percent from IPO price
Trading range since IPO: $8.98 to $19.82

Groupon Inc., online deals company, first day of trading on Nov. 4, 2011
Pricing: $20 per share
First-day close: $26.11, up 31 percent from IPO price
Tuesday's close: $4.24, down 79 percent from IPO price.
Trading range since IPO: $4.12 to $31.14

Pandora Media Inc., Internet radio company, first day of trading on June 15, 2011
Pricing: $16 per share
First-day close: $17.42, up 9 percent from IPO price
Tuesday's close: $12.27, down 23 percent from IPO price
Trading range since IPO: $7.83 to $26

LinkedIn Corp., online professional network, first day of trading on May 19, 2011
Pricing: $45 per share
First-day close: $94.25, more than double IPO price
Tuesday's close: $107.37, more than double IPO price
Trading range since IPO: $55.98 to $122.70
Peter’s Comment
It would appear from a quick read of the above that investing in IPOs is not a good idea but careful analysis shows otherwise.
Facebook had a troubled launch and involved many first time share market investors. When the share price slipped soon after the launch many panicked and sold at a loss.
Many Facebook investors ignored some golden rules of investing:
(1) Don’t put all your eggs in one basket, and
(2) Share values often fluctuate and you only loose if you sell when they are down. Until then you only have a paper loss. Shares in some companies have been known to dive to 5 percent of an earlier value and then rally again and go through the roof.
(3) You can make a gain from shares by collecting dividends and bonus shares, or selling when the value is higher than the purchase price.
Every investor should have a strategy and one of the better and safer strategies is to spread your investment over numerous companies and just hold on to them. You will still collect dividends from most of them, most of the time, in hard times and all of them in normal times. As time goes by the value of such a portfolio will generally increase.
Another strategy (the one that I like) is again spread your investments wide over several company and industries. Have a rule that you never sell when a share is down and if there is no obvious reason for it to be undervalued, buy some more and wait. If you find that a share has increased in value faster than the overall market increase, sell some of them, or even all of them and transfer the proceeds to shares that are under-valued.
Be sure to allow for brokerage fees when doing this so that you can be sure that you will come out ahead real time. And it is better to learn how to trade online rather than sit down in a broker’s office. You will not only greatly reduce your brokerage fees but you can time your transactions to get the best possible prices.
Above all remember that many people buy and sell at the wrong times. You should buy shares when most people are saying that the stock market is too risky and you should consider selling some of your shares when the talk is about how good the market is and how it will keep on getting better and better. In other words, do the opposite to what crowd advises.
In the above share examples an investor who purchased 100 shares in each of the eight companies would, in spite of the huge paper losses of half of the companies, would now be slightly ahead on paper value: Initial investment - $16,900. Current value – $18,347. Brokerage would take part of this gain but dividend payments would already take care of the brokerage.
On the other hand if an investor put $16,900 into Facebook on launch date and panic sold them within days because they were in free-fall he would be thousands out of pocket. The irony is that Facebook is a strong company with annual revenues of $3.7 billion and its share price will almost certainly rise again. Right now, shrewd investors will be buying into Facebook.