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Post of the Day
August 4, 1999

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Subject:

Re: Out Of The Frying Pan, Into The Fire!

Author: laopera

"That basket is Red Hat! I am not one of the privy who will get in on the IPO coming out August 11. I am standing in line with my order at the opening bid. This is something I have never done before, yet I feel this is an opportunity of a lifetime so I am going on gutinstinct! How many of us wish we would have been there at the opening bid of Microsoft. Well for me this is as close as it gets!"

I can't advise you strongly enough against doing this. Why is it necessary? Consider this--if it goes up 70% the first day, do you really think you'll buy at say, 50, and then sell at 70 the first day? What good is a stock that overachieves its first day and underachieves its second? And why would you be in such a hurry to buy it? Or, for that matter, to sell it?

I would rather buy a stock a week after the IPO than the day of. After a week, you can see what many, many traders have felt about the stock. The day of it is all guesswork. Stocks can fly up but only a handful of people are making money on the ascent, and not many who have only bought the same day at all.

Look at all three cases, the only possible outcomes, none of which really make sense for buying the first day:

--Scenario One: a stock spikes and suddenly retreats. Unless you are a seasoned day trader or an institutional trader, you will not catch the spike. You will watch it go up, wait, wait, it starts to go down, well, wait again, down some more, damn if only I had sold fifteen minutes ago...if I call in a stop, I might miss entirely and it could go down further, if I call in a market order I could end up losing money by the time it goes through...too late...

(You probably, if you have an instinct about this stock, don't want to sell the first day anyway. So that leaves you with...)

--Scenario Two: the stock dips. If so, wouldn't you have been better off waiting a day? Maybe even two? Maybe you can have it for a song at the end of the week!

--a stock rises moderately its first day, and moderately again its second. Hey, this is a momentum play! It's looking good. My instincts were right! Sure I lost a few optimal bucks, but if I hop aboard right now, by the first quarter I might make 10-20%...

I'm not trying to deflate your instinct. I believe in instinct a lot in investing. I also believe that instinct can be well informed by experience (we see this all the time in the fashion industry, which never does market research but which always seems to come up with the right look for the time). I'm not trying to lecture you, but I REALLY don't want you to do what you're about to do. Please email me if you need to discuss it further. I used to do this junk around 1992 and it just isn't worth it.

Joseph Mailander
known here sometimes as laopera