You see, IPOs are just get-rich-quick schemes for investment banks and institutional investors. These investment banks and large institutions are able to buy shares at the offer price.
Retail investors don’t get in at the offer price. Instead, we have to wait until the higher ‘open price.’
Because these big banks and large institutions need the price to be bid up in order to make a profit, analysts (who work at these banks) rate the new stock very favorably. This entices people to buy the stock at an inflated price. Once the excitement vanishes (and the big banks and institutions cash out), the stock price drops.
We saw it with GoPro Inc. (Nasdaq: GPRO) and Fitbit Inc. (NYSE: FIT). Both are trading about 90% below their post-IPO peak prices.
‘The thought that any sane investor would buy Snapchat is frightening,’ said Money Morning Capital Wave Strategist Shah Gilani. ‘Buying shares in SNAP is like trying to pick up nickels in front of buses.’
After all, this is a company that admitted it might never make money when it filed for its IPO.
This post was published at Wall Street Examiner on August 2, 2017.