IPOs Are More Than Just A Losing Game

IPO investing used to be in. All the cool kids were doing it. Then came 2011 when the darlings of Web 2.0 did a group belly flop: Groupon (GRPN), Pandora (P), LinkedIn (LNKD) and Zynga (ZNGA) are all down or flat since going public. Yet the thrill of being served a slice of IPO cake is still frosting to investors. So here's the truth about IPO investing: it's a gamble in the best of cases, a losing strategy in most. Not to say that when Facebook (FB) goes public (expected later this year) you won't see the now-familiar meteoric first day of trading. But the first day is for hedge fund traders and big institutions. You're an investor and that means knowing when to sell, as well as when to buy. And for the record, buy-and-hold has a poor track record with IPOs, as we'll discuss below.

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