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Wall Street B.S. - Get Out Your Shovel

By Doug Fabian
President, Fabian Investment Resources
Host, The Doug Fabian Show

According to CNBC, Initial Public Offerings (IPOs) are up 140% this year. So why would I say a bad word about any of these impressive young fillies? 

Because someone needs to blow the whistle on deceptive stats, artificial price inflation and the truth about the IPO craze.

First, let's take a closer look at the claim that IPOs are up an average of 140% in 1999. This stat uses the original offer price which, unless you're a Wall Street insider, you have zero chance of getting. In fact, the individual investor has a better chance of locating a needle in a stack of horse food.

That means you can only buy Martha Stewart's good name after she's hopped some 250% on opening day. Worse yet, you're likely to get those shares 50% or more above retail. And that's bad when the stock comes crumbling down.

Not Martha, you say? Then why have 3 of the biggest IPOs in stock market history -- the globe,com, cbsmarketwatch.com and priceline.com -- all fallen from grace? The biggest star in the history of IPO's, the globe.com, rose 606% on its first day of trading. It was as high as 42 this past May, but currently trades in and around 10. That's an 80% loss.

What about the others? Well, cbs.marketwatch.com soared 474% out of the gate, hit a high of 130, and currently trades at 50. That's a 65% loss. And then there's priceline.com. William Shatner is always telling us that it is big... reaaaaalllly big. But not for the foolish investors who are down 50% from the stock's high point.

Simply put, the vast majority of these new companies haven't been around long enough to prove their merit or their stamina. In fact, Smart Money Magazine reported in the middle of the year that of 600 recent IPOs, 75% dipped below their offer price within the first two years of trading. Remember, most people don't acquire these stocks at their offer price; most acquire the stock some 200% or more above the initial offering. It stands to reason that many people who played the "buy-n-hold an IPO" game lost $8000 on every $10,000 invested.

Perhaps the answer is to buy a stock fund that has access to IPOs at the offer price; that way, you can get in on the incredible early gains, right? 

Wrong. The IPO Aftermarket Fund may be up 76% year-to-date, but it is significantly underperforming the often-quoted IPO average of 140%. And the Aftermarket Fund hasn't even kept pace with the the average Science and Technology vehicle, a category with YTD performances in excess of 100%. What's more, this fund lagged the S&P's 28% last year, taking in 18%.

Hear me now when I say, Wall Street dumps so much BS on the public, you need a shovel to clear yourself a path. I'll be exposing a ton of Street B.S. this Saturday on The Doug Fabian Radio Show.Tune in!

Doug Fabian is president of Fabian Premium Investment Resource and editor of the company's four subscription-based newsletter products. For more information on these services and the highly rated Fabian Plan, including how it can help you attain your goals of growth and income using today's best no-load mutual funds, visit the Fabian web site at http://www.fabian.com/.

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