Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Investing in the Tulip Crypto Mania 2021 - 19th Jun 21
Here’s Why Historic US Housing Market Boom Can Continue - 19th Jun 21
Cryptos: What the "Bizarre" World of Non-Fungible Tokens May Be Signaling - 19th Jun 21
Hyperinflationary Expectations: Reflections on Cryptocurrency and the Markets - 19th Jun 21
Gold Prices Investors beat Central Banks and Jewelry, as having the most Impact - 18th Jun 21
Has the Dust Settled After Fed Day? Not Just Yet - 18th Jun 21
Gold Asks: Will the Economic Boom Continue? - 18th Jun 21
STABLE COINS PONZI Crypto SCAM WARNING! Iron Titan CRASH to ZERO! Exit USDT While You Can! - 18th Jun 21
FOMC Surprise Takeaways - 18th Jun 21
Youtube Upload Stuck at 0% QUICK FIXES Solutions Tutorial - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations Video - 18th Jun 21
AI Stock Buying Levels, Ratings, Valuations and Trend Analysis into Market Correction - 17th Jun 21
Stocks, Gold, Silver Markets Inflation Tipping Point - 17th Jun 21
Letting Yourself Relax with Activities That You Might Not Have Considered - 17th Jun 21
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Surprising Opportunity behind Tesla Motors IPO

Companies / Corporate News Jul 01, 2010 - 03:04 PM GMT

By: Q1_Publishing

Companies Best Financial Markets Analysis ArticleThere are few sectors as volatile, risky, yet as potentially lucrative, than initial public offerings (IPOs).

Every time a company turns to the public markets to raise cash, it’s either a boom or bust. Very rarely are they ever just flat.


This week was no exception. The much-hailed Tesla Motors (NASDAQ:TSLA) has been a smashing success so far. The maker of six-figure electric sports cars’ shares opened for trading around $18 and have soared in the past two days to more than $30 per share (a gain of 60%+).

Although Tesla has already started giving back some gains, the success of the Tesla IPO just shows the opportunities that exist in the IPO market. And if you play by the right sight of rules, you can do really well in any type of market and limit risk.

IPO Trading Success: Play by the Rules and Win Big

There’s always something going on in the IPO world. Either new companies are being listed, touted, and run or they limp out of the gates and just slowly and steadily dive. Either way, there’s usually and a good opportunity with them.

There are three rules anyone looking to score a few wins in IPOs must follow though:

Rule #1: Never bet against Wall Street – The financial world has come to realize that the stock market is rigged. Goldman Sachs’ alarming consistency over the last year has made that abundantly clear. Its trading operations have been profitable on more than 95% of all trading days.

That’s why when it comes to IPOs, where all of the shares are placed with the investment banks’ closest allies, you do not want to bet against them.

For example, the Tesla Motors IPO has had a heck of a run. It has largely done so because it’s in Wall Street’s best interest. A single hot IPO will open the market for more of them. And when investment bankers can score $50 million or more in fees for a single IPO, they have a vested interest in ensuring a widely watched IPO is very successful.

Rule #2: Never “Invest” in IPOs – IPOs are very consistent performers – consistently poor.

A recent study from the University of Florida has proven IPOs are some of the worst places to look for long-term gains. The study found that between 1970 and 2008, the returns of recent IPOs trailed their more established counterparts by an average of 3.5% per year over their first five years of trading. In a world where 8% to 11% is the average return, 3.5% is a big difference.

Also, IPOs have underperformed in all types of market conditions. The raging bull of the 80s and 90s was not too kind to newly listed companies. IPOs trailed similar sized companies’ shares by 4.1% in the 80s and by 3.1% in the 90s. The “lost decades” of the 70s and 00s were no different. Recent IPOs trailed by 7.6% per year in the 70s and 2.1% in the 00s.

Don’t get me wrong, Mr. Market will throw out the occasional winner to keep interest in them strong. That’s just how he works. And that’s why there will be the occasional Google (NASDAQ:GOOG) which went from less than $100 per share to more than $600 per share. But for every Google though, there are dozens of complete busts.

That’s why we consider “investing” in IPOs a strategy doomed to fail. They are for trading and any position taken in them should be viewed as exactly that - a trade.

Rule #3: Stick to the Cycle – IPO stocks tend to run in very consistent patterns.

If they’re hot, they run up for a few weeks or months. The excitement feeds on itself. Every up day draws more investors in a “better get in now or you’ll never get in” self-reinforcing loop. These rarely last too long. And when they start to run out of gas, watch out, the weak hands are quick to sell out on the way down.

If they’re slow out of the gates, they tend to remain that way. The five worst-performing IPOs of 2010 are now down an average of 42.8% from their offer price.

History Repeats…Again

With the rules in mind, the blazing hot Tesla is shaping up to be an interesting opportunity. It looks strikingly similar to something we spotted about 10 months ago.

If you recall, the markets were struck by a flurry of excitement surrounding the IPO of A123 Systems (NASDAQ:AONE), a company that makes electric car batteries.

A123 was the “perfect story” (remember, retail investors love stories more than value). Its technology was developed at MIT. It had partnered with top-name automakers. It received a big subsidy to build a new plant from the U.S. government. It was initially backed by some of the most successful venture firms in the world. And electric cars were a really exciting idea at the time.

It had it all. But irrational excitement doesn’t trump reality for long.

At the time A123 shares hit the market, we wrote:

As of today, the company with no proven product, no major sales contract (GM actually passed on A123’s batteries for the Chevy Volt), very little production capacity, no near-term prospects for profitability, and sports a market cap of more than $1.9 billion.

But Wall Street desperately wants – maybe even needs – a scorching hot IPO.

It was a great short-term, bad long-term story.

We knew the story was good and we knew Wall Street really needed a hot IPO to kick start the IPO market (and the big fees that come along with it). So it was safe to buy for a short-term trade, but shares were going to hit some big headwinds as initial excitement faded.

Since then A123 has stuck to the IPO cycle perfectly. Close followers had the chance to pick up shares around $19 shortly after the IPO. The stock hit a high of more than $28 per share within a few days.

 It was a great run until, well, until it stopped.

A123 shares have fallen steadily ever since. Right on schedule, they’ve shed 2/3rds of their value in the past two months.

The way things are looking, Tesla Motors is in the exact same position.

It has a great story. It was founded by some top venture capital backers. It has a product that has generated a lot of media attention. Its sales are subsidized by the U.S. government.

But in reality, it has a product that is expensive and doesn’t have mass appeal. The launch of its electric sedan, which Tesla is betting most of its future on, is two years away (and that’s assuming no major setbacks). And any earnings are even farther away than that.

So right now the best move is to wait for the first sign of weakness and get in position to take some safe, reliable gains on the downside.

Finding Profits in Any Market

It’s kind of exciting to see the IPO market roar back to life. And it’s only appropriate a high-profile, high-flying IPO is leading it.

More importantly though, this emerging situation shows there are opportunities available for those willing to look for them. And in the case of a long-run bear market we’re in, those willing to learn how to find stocks to bet against, will do very well.

As we always recommend at the Prosperity Dispatch, the key to IPO trading success is just like applying any other investment strategy, which is to always stick to the rules like not betting against Wall Street in the short-term, identifying patterns and cycles, putting the odds in your favor, and always developing a plan and sticking to it.

The rebound in IPO that’s sure to follow soon will help prove there’s always an opportunity somewhere. You’ve just have to know where to look and how best to take advantage of them.

Good investing,

Andrew Mickey

Chief Investment Strategist, Q1 Publishing

Disclosure: Author currently holds a long position in Silvercorp Metals (SVM), physical silver, and no position in any of the other companies mentioned.

Q1 Publishing is committed to providing investors with well-researched, level-headed, no-nonsense, analysis and investment advice that will allow you to secure enduring wealth and independence.

© 2010 Copyright Q1 Publishing - All Rights Reserved


Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in