Uh-oh. The initial public offering (IPO) market may be heating up again. According to an AP story, analysts are waxing bullish on IPOs, as they're seeing small signs of increased activity and rosier receptions for newly minted shares.
By itself, this isn't necessarily bad news. After all, when companies need to raise money, going public by issuing shares to interested investors is a perfectly legitimate way to get needed moolah. If established cash machines such as Microsoft (NASDAQ:MSFT), Wal-Mart (NYSE:WMT), and PepsiCo (NYSE:PEP) had never gone public, many investors wouldn't have the wealth they have now, and the companies probably wouldn't be as large and successful.
Still, be very careful with IPOs as they can be riskier and less fruitful investments than shares of companies with more established track records. And they have other complications, as well, such as their shares often mainly being available only to well-connected big investors. Our best advice is to generally steer clear, giving a newly public company time to prove itself and earn your confidence.
Some traditional practices relating to how IPO shares are allocated to investors have recently been exposed and regulators have been taking steps to curtail them, though in the eyes of some experts, the proposed changes don't go far enough. You can read about flipping, spinning, and laddering in this Washington Post article and this Dow Jones report. To learn more about recent and upcoming IPOs, check in on Hoover's IPO Central.
Learn more about IPOs in our ABCs of IPOs collection and also in this Bill Mann article on hot IPOs. This Investopedia collection is also informative.
