If the buzz around the Uber and Lyft IPOs has you wondering how to invest, you may want to reconsider. Experts weigh in on when and how it's best to invest in newly-public companies.
For multiple companies, it's the moment they've been waiting for: The window has opened for them to go public.
"IPOs aren't just about, 'Oh, I want to invest in the things I know,'" said Kathleen Smith, principal and manager of IPO ETFs at Renaissance Capital."It's about, 'How do I make money investing in these?''In today's market, chances are that buying in on a newly public stock could be a losing proposition. Financial experts say there are several reasons why.
Uber previously raised roughly $20 billion in funding and is eyeing a $120 billion valuation when it goes public. Lyft has raised more than $5 billion and plans to be valued at $23 billion. While many IPOs close up on their first day, that first day pop and subsequent run up is not guaranteed, according to Michael McKevitt, director of financial planning at Guillaume & Freckman.
"Even if you pick the right company, like Facebook, which has done amazingly well, you still had to put up with a 50 percent decline, multiple 40 percent declines, multiple 20 percent declines," McKevitt said."How many people bought it and held onto it through all of these moves?" "You can sometimes see the stock price has a pull back — not always, but there can be — when the lockup ends," Gorman said.
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