IPOs are not always an easy source of gains
— -- Q: Why have so many IPOs jumped higher on the first days of trading, only to fade lower?
A: Investors speculating on shares of newly public companies are getting pretty beaten up this year.
Despite initial public offerings' reputation as being a source of free money for investors, these deals have been yet another source of disappointment. Investors taking chances on newly public companies have gotten a beating both on specific deals and from the IPO market as a whole.
The average IPO, this year, has declined much more than the broad stock market. The FTSE Renaissance Global IPO index, which tracks shares of newly public companies, is down 23% this year. That means typical professional investors who buy pieces of most of the IPOs offered have lost nearly a quarter of their money this year.
But even that pain masks what's been a number of individual company disasters. A startling number of this year's IPOs have "broken," or fallen below their initial offering price. Broken deals are especially painful because the privileged investors who get access to IPOs are getting hit with losses if they hung onto the shares.
Zynga, is not the only IPO to break this year. So far, 82 of the 119 IPOs to price this year, or 69%, have closed below their offering prices, according to USA TODAY analysis of data from IPOscoop.com. It's a brutal hit for investors, who are already looking at the broad Nasdaq composite index and Standard & Poor's 500 being down this year.
This year is another reminder for investors that while IPOs often seem like easy money, they're risky investments that can cause significant losses.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Follow Matt on Twitter at: twitter.com/mattkrantz
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