Initial public offerings can be bargains when they drop
— -- Q: Why do many initial public offerings fall below their IPO price? Does that mean IPOs are a bad investment?
Q: It's been some time since the initial public market provided a way for companies to print money.
When the stock market stumbles, the IPO market falls on its face. And that certainly has been the case for IPOs since the market peaked in 2007. It's been pretty ugly for companies trying to sell stock to the public. The number of IPOs is down nearly 8%% this year so far from the same period last year.
Interesting, though, when you see IPOs crash from their IPO prices that's good news for individual investors. The fact is that few individual investors can buy IPOs at the offering price. That's the price at which the underwriter hired to sell the shares offers them to favored clients.
Usually, regular investors must wait until the IPO starts to trade before they can buy. So if the IPO falls below its IPO price, that means you can get a better price than the big investors and mutual fund companies who got first crack at the deals.
The bottom line. Don't let the fact that IPOs are dropping below their IPO prices scare you. It's a good thing for investors, as long as you know how to carefully examine which companies might have staying power.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online 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. Click here to see previous Ask Matt columns. Follow Matt on Twitter at: twitter.com/mattkrantz
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