IPOs - not hard to call?

Friday, July 14, 2006

Maybe this is just a recent phenominon, but I've been watching and/or participating in IPO investing (sometimes trading) for the last year or so, and have a 100% success rate in making decent money. We've been selective, but made investments in Under Armour (UARM), Master Card (MA), and thought really hard about Sealy (ZZ) and Burger King (BKC). Here's the formula I've (we've) been using:

  1. Absolutely must be a well-known company. If the company name isn't recognized, then I don't usually give more than a cursory glance at the rest.
  2. Business model needs to be solid. We passed on Vonage (VG) because they have little to offer customers to stay with them, and the big incumbants can (and are starting to) roll out similar services as comparable price points. There's no reason for customers to stay.
  3. The wife needs to agree. Not to be flippant here...a second or third person brings a different perspective and will often kill some reasonable concepts (in our case Sealy and Burger King).

UARM and MA were both fairly short term investments, and you can certainly argue with me there. UARM was held for about a quarter until I got sufficiently concerned about Nike coming in to destroy them.

MA is a decent long-term investment, but I had to go on margin to buy the stock, so I sold after a month and having made some significant money. Even without the margin issue, our #1 rule has been "don't get greedy".


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