I just love it when a hot new tech stock crashes.
Please don’t think I’m taking delight in watching folks lose money. Well unless it’s those “geniuses” on Wall Street. Just saying…
Here’s the simple truth. If folks don’t listen to me, I can’t help them.
I have said for many years now that the average retail investor should avoid buying high-tech initial public offerings (IPOs) when they first start trading. When you buy at the open, you really risk losing your hard earned money.
It’s much better to wait a little more than six months from the open. That’s when insiders can sell, an event that usually means a big drop in price.
Had you followed that advice with a savvy cloud provider I’ve recommended, you could have made 863% in just a tad more than five years.
But if you bought at the open, you risked losing more than half your capital.
The IPO Pitfall
Now then, I’m bringing this up with you today because I do expect to see heavy IPO volume in 2020.
That’s because the market remains near record highs and companies want to take advantage to have a timely exit from being privately held.
In the third quarter of 2019 alone, we saw 50 IPOs, according to data from FactSet. That followed brisk second-quarter output of roughly 85. That brings us to a total of 175 new stock debuts in just the first nine months of the year.
FactSet has not issued full year numbers but it looks like we had more than 200 IPOs for all of 2019. If 2020 just sees half that many IPOs, we’re still talking 100 chances for average investors to get hosed.
Sure, you may miss the occasional rocket ship. But the odds are really against you here.
And I can prove it. Back in June, Business Insider listed the 10 hottest IPOs in the first half of the year. So, I went back and looked at each one.
Every single one had crashed from their highs, declining by 40% or more. Of those, only one came back to start trading above its previous high.
To show you just why I say you should wait for the post-IPO selloff, I have a great money-making example.
VEEV Shows us to Buy for The Bounce Back
Veeva Systems Inc. (VEEV) is a stock I know well and have recommended in the past. Like the other stocks I have been discussing with you today, Veeva got hammered a little more than six months after its debut on October 14, 2013.
Shares of the provider of cloud services for the drug and biotech sectors, finally hit a low of $18.23 on May 5, 2014. From the close on its first day of trading, the stock fell 60% before bottoming out.
There are no two ways about it. If you were protecting capital with a stop loss as I always recommend, you would have lost at least 20%.
Even worse, you would have missed one of the great cloud plays of all time.
From that closing low until the stock reached its recent high of $175.65 last July 12, it went on to deliver an amazing 863% return.
That means in just a bit over five years, an investment of $25,000 would have turned into $215,750. No, that’s not enough to make you a millionaire.
But you can see that you only need a handful of big winners like VEEV to do so.
And that brings up the key point I have been making in our chats here for several years now.
The road to wealth really is paved with tech. This is the only place where you regularly see massive Veeva-like breakouts – if you know where to find them.
Not to toot my own horn, well maybe just a bit, that is what I bring to the table with our twice-weekly talks.
Having knocked around Silicon Valley for 35 years now, I have developed a system that regularly delivers big winners to you.
Please keep that in mind when I tell you I still see plenty of upside ahead for Veeva.
In our next chat about the stock, I will show you why it’s set to double from here in just a smidgen over two years, turning that original $25,000 into $431,500.
Cheers and good investing,
Michael A. Robinson