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IPO's

I was sitting reviewing the farce that is both Groupon and Facebook and marvelling at the ability of markets to destroy shareholder wealth. Although it must be said that anyone who invested in either of these two thinking that they were viable businesses should take their remaining funds and invest in some serious therapy.

After my mirth at other peoples stupidity had subsided I thought it might be worthwhile to actually have a look at the performance of IPO’s over time. ¬†On the sales side of investing much is made of getting into IPO’s, Brokers frequently use the lure of being in an IPO to attract clients. In my use of google fu I came across this interesting paper

Whilst it was printed in 1998 I think the basic premises might hold true. T save you reading the entire thing I have extracted what for me was the relevant pieces. The two tables below show the average initial return and then the returns at the three year mark.

Despite the hype it would seem that most IPO’s are not worth the effort and since you cannot truly extract those worth the effort from the rest of the garbage it would seem that IPOs are worth avoiding.

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