SMART Investing: The IPO Launch

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SMART Investing: Twitter IPO

In this serial, SMART Investing looks at the Twitter IPO. Twitter is targeting this Thursday morning as the trading day for their much awaited and talked about IPO, or initial public offering.  They will set the price, estimated between $23 and $25 Wednesday evening. This is more than the $17-$20 originally estimated. And will raise about $2 billion, at the high end. They are offering 70 million shares, indicating a market value as much as $13.6 billion. Their symbol is TWTR on the New York Stock Exchange. Opening bell at 9:30 am.

By industry accounts, this IPO launch is probably the most anticipated since Facebook last year. If you feel you missed the boat on Facebook (FB), don’t worry. You can buy up the stock on its way down or up, depending on your risk tolerance and ready cash. It was trading at $50.10 at the time of this report.

Investing strategy for Newbies!

Investing in stocks can be fun and rewarding. However as a precaution, never use your life savings, emergency fund or funds you don’t have. Investing is also NOT for the faint hearted. Stock picking is a game of strategy AND lifestyle. Don’t pick stocks in an industry you know nothing about. Speculative investing is a dangerous practise, if you don’t know what you are doing.

Stock picking is part strategy, part lifestyle and a whole lot of patience. There are active traders and investors. What type are you? Active participants trade on a regular basis, sometimes more than 10 times per month. Investors look beyond a trade, for the long haul, occasionally selling for other gains like, real estate. The best rule is to always use money you will never miss. This discipline is the biggest lesson you will learn. Because anyone who has traded and invested in the market will tell you that you will lose money, somewhere in the process, guaranteed!

You don’t have to be rich to invest

Contrary to popular myth, you don’t need to be rich to invest. Did you know that one share will get you to the party? That is correct, you will be invited to the annual shareholder’s meeting. So, if you want to see The Zuck live at next year’s meeting, buy one share of Facebook (FB) or Bezos at Amazon (AMZN). Disclaimer: These are not stock recommendations.

On the other hand, if you want to infuse your retirement and/or lifestyle, typically 1,000 shares might do it. But note that there is never a guarantee of outcome or income. This is because securities, unlike a bank account is not FDIC insured. It’s a risk that many of us are willing to take. More about this below.

You can also benefit from free falling stocks. This usually occurs due to market correction and/or investor confidence. The great thing about free falling stocks, i.e. Facebook (FB) last year, was buying more shares at a much lower price. As an example, FB IPO had a volatile start and within two months went from $40 to $24. And even as low as $19. It’s not advisable to ‘time the market’. It’s advisable to do your own research.

Never be glued to a stock’s day to day performance. Instead, research the company, their business model and executive leadership. In addition, look at market trends and where it’s headed. These analysis will give you better insight in to a company’s direction and market, then just the stock itself. Many trading platforms will provide some of these insights.

Don’t just rely on stock performance. Bank on the people behind the ticker not the stock, itself. A company’s valuation is also critical to your bottom line. But make certain it’s a true valuation.

SMART Investing: Twitter IPO – How will it launch?

With this stated, you should educate yourself on how IPOs work. The firms handling the roll out of Twitter include Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America, Merrill Lynch and Deutsche Bank. IPOs are first offered to clients of these firms, who then sell shares. Individual. high net worth clients of these firms may also have access to the IPO. The shares then trickle down to online brokerage houses. You might also have access to them through your mutual funds company. BUT, ALL of this will not be clear until the stock actually starts trading on the exchange.

SMART Investing: Twitter IPO – Should you invest?

“Securities,” unlike your savings and checking accounts, DO NOT fall under the FDIC protective status. “Securities” are NOT guaranteed. That is why stock trading carries enormous RISK, and in the process, you may lose EVERYTHING. Please refer to my previous statement on the third paragraph, that investing is NOT for the faint hearted.

In order to fully answer this for yourself, DO YOUR RESEARCH! The cons play out here. One in particular is that the microblogging company has not turned a profit. I would prefer to see the balance sheet before I invest in any company. I also would caution against hype. Facebook was a great example of this. Anything “red hot” might not always be a good idea, initially. 

How to increase your investment quotient.

  • Invest in what you know
  • Never use money you don’t have
  • Don’t get wrapped up with daily stock minutia
  • Bank on the business model and executive leadership.
  • Speculative investing is a dangerous practise.

YOUR BOTTOM LINE:

Please weigh the risk, the hype and your cash!