As we are about to embark upon one of the biggest IPO‘s in history I thought it would be a good time to step back and see what this is all about and how you can shield yourself from a potentially dangerous situation.
As we know, Alibaba (BABA) will come public this week. The company is a juggernaut in Asia, selling everything online to anyone much in the way Amazon does here in the States.
But there is tremendous hype covering this release of China’s big online retailer. It has become a media frenzy, and when that happens the alarm bells go off. I’m not saying there is anything wrong with the company, but the stock is a different story. And when the owners are selling out as they are in this (and every) IPO, should we be buying? For the moment, I would say no.
Remember the last few over-hyped IPOs? The most recent one was Twitter. Much of the anxiety over this one was due to the prior failure of the Facebook release (more on that one below). Twitter came out with a smaller allocation of shares and the stock was in great demand following the first day of trade. It ran hard for a few months and then when earnings hit the owners were left holding the bag. Since then (early this year) the stock is making a nice recovery but the owners still made out.
Facebook was a monumental disaster on many fronts. Not only was the share allocation extreme but they bumped it up because demand was so fierce. The media frenzy over this release was a clear hype and it seemed everyone wanted a piece of it. However, the first day turned into a major bust and it took at least a year before the stock finally found its way. Currently it resides near all-time highs but the doubts lingered after the stock came public.
I’m sure there will be a happy ending for Alibaba and its shareholders, hopefully they won’t act like the ‘band of 40 thieves’. However, you might be better served to wait this one out, because if you are in the hype machine created by the financial media and pundits you just might be taken for a ride that you did not expect.
