This story appears in the November 3, 2014 issue of Forbes.
Some oft-asked questions amid an increasingly turbulent market: Are IPOs too hot? Are there too many? And isnât this euphoriaâas evidenced by the recent lurching? As an ardent sentiment analyzer, I say, âNot even close!â
Why? Itâs not how many IPOs that matters. Itâs the type. While IPOs increased markedly in this bull market, thatâs what theyâre supposed to doâpredicting no more than a simple calendar does.
Instead, envision IPO types. One are firms formed years ago that built, fast or slow, real businesses. The other are recent sexy concepts with few customers or little sizeâthese are tough to distinguish from investment bank-manufactured IPOs, done for no better reason than tapping into hot money.
During most typical bull markets, IPO money comes largely in the former type. In the late euphoric phase, itâs the latter.
Why? Through bad and lukewarm times fast-growing real firms and older, slow-built firms (often earlier taken private) normally pile up, waiting their day.
This time that included fast-built ones like Facebook (FB, Financial) and Alibaba (BABA, Financial) âIPOs that markets long cravedâas well as recyclables like Chrysler, Hilton and Kinder Morgan (KMP, Financial). Both kinds are speculations, little different from other comparable public stocks. You âll likely overpay, but theyâre unlikely to go bankrupt soon. (IPO really means: âItâs Probably Overpriced.â)
