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Answer:
Dear
S.J.,
Thank
you for taking time to write.
By
"new stocks" I assume you mean new issues or, as they're
called on the Street, IPOs (Initial Public Offerings).
And yes... a handful of new issues are continually
coming onto the market.
The
risk factor
However,
an IPO, as an addition to one's portfolio, comes with
a certain degree of risk. Sometimes with a lot of
risk -- especially if the company is brand new and
thus has no track record. Even if it's a spin-off
(see below) tracking its past is not always easy,
particularly if it has had several prior owners.
Nevertheless,
sometimes a well-known company goes public, such as
google.com did not too long ago and prior to that,
Krispy Kreme. In these and similar cases, with brand
name recognition, you can make an educated decision
about whether or not to participate based on what
you already know about the company.
The
current boom
It
is true, that IPOs are in the news and in a big way.
(Big doesn't necessarily mean they're right for you.)
According to a report just released by Thomson Financial,
thus far this year, public offerings have raised $8.4
billion.
The
last time IPOs had such a sizeable boom was in 2000
and then many of the new companies were in the wild
dot.com business, often headed up by fairly young
CEOs.
This
year, many of the IPOs launched involved larger companies
and not just those in the technology business. As
we go to press, the largest IPO for this year is in
the chemical industry -- Huntsman, a company that's
nearly 30 years old.
Another
interesting fact is that many of the 2005 IPOs are
spin-offs from larger companies. This is not a new
phenomenon -- over the years larger firms turn to
spin offs as a way of getting rid of assets they no
longer need or want.
Price
moves
A
word of caution... Even though there have been a number
of IPOs this year, Thomson Financial reports, the
average price gain thus far this year is just 7%.
Keep in mind -- that's the average, which means plenty
fell below a 7% increase.
For
Further Information
(1)
We've covered IPOs in previous columns, sometimes
just keeping BuyandHolders up to speed. However, there
is one column that you should read before you go any
further into the world of IPOs. It will give you an
in-depth understanding of what they are and how they
work. Click HERE
to read.
(2)
An easy-to-use Internet source for continually updated
information on IPOs is: http://biz.yahoo.com/reports/ipo/htm.
Simply type in the symbol of the company that you
are interested in learning more about.
Good
luck!
BUYandHOLD
does not offer or provide any investment advice or
opinion regarding the nature, potential, value, suitability
or profitability of any particular security, portfolio
of securities, transaction or investment strategy.
Any investment decisions you make will be based solely
on your evaluation of your financial circumstances,
investment objectives, risk tolerance, and liquidity
needs. The securities mentioned above are being used
for illustrative purposes only and should not be regarded
as an offer to sell or as a solicitation of an offer
to buy and past performance is no guarantee of future
results.
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