With all the happenings around the LinkedIn (LNKD) IPO, you might wonder how you could have gotten in at the $45 price instead of the $83 price the stock opened at on the first day. I know that particular IPO got lots of news coverage and there was a spike in interest in the whole market as shown by more searches on Google for “how to buy stock” that day. Presumably these folks wanted to learn more about IPO’s and how to get in on them early.
Anyone who was lucky enough to get in the LinkedIn IPO at the $45 price immediately saw their money double and almost triple at one point the first morning of the opening. Seeing that kind of return so quickly is something that most people would love to be part of. Who wouldn’t right? Unfortunately, most people will never be able to be part of something like that because not everyone has the necessary connections to get in on the ground floor.
To get into an IPO stock before the market opens and everyone bids it up, you need to have connections and be a big investor. I have never, nor will I ever qualify for something like that because I am just a regular guy like most people are when it comes to investing. If you are a big player though, with portfolios in the millions of dollars, you might be considered a big enough client that your broker will want to keep you happy by getting you in early on an IPO. In other words, you need to be “someone” to get that lower price.
For the rest of us, the only way to buy an IPO is AFTER the market opens. In LinkedIn’s case that was at a price of $83 dollars which was well above the $45 price all the muckety-mucks got in at. The price continued to go up from there and the higher you buy a stock at, especially something as unknown as an IPO, the more risk you face.
Today as I write this the price of the stock is just under $79 dollars per share. So, if you bought the stock at it’s IPO open and didn’t sell since then, you are already looking at a loss.
A good strategy for regular people to take when buying IPO’s is to wait six months. That is because there is a rule that insiders cannot sell their shares until 6 months have gone by. At the six month mark, there is often a lot of selling by these people which can drive the stock price down. Also, you will have an opportunity to patiently watch the stock and the company during that period to see whether you really want to buy it.
In summary, the only way to make a quick buck on IPO’s for most people is to buy the stock right when it opens the first day, hope it goes straight up, and then quickly sell while the hype and euphoria is still in the air. But that is most certainly NOT a guarantee. IPO stocks can go down right away too and then you will be looking at a loss. A better way for long term investors is to wait six months to buy the stock when the insiders start selling and sometimes you can get a better price that way than you would if you bought anytime the first day.