According to 'The Intelligent Investor', IPOs are closely related to the cycle of bull markets. The book warns investors to avoid purchasing IPOs, especially during bull markets, for two main reasons. Firstly, IPOs have a higher built-in commission, leading to a harder sell. Secondly, new issues are almost always sold near the peak of a bull market. The initial IPOs in a rising market lead to profits, which fuel a frenzy for subsequent IPOs. A clear sign of the end of a bull market is when IPOs of small and nondescript companies have stock values higher than medium-sized enterprises with a long history. Since the prices of these new stocks usually crash to new lows, the book advises investors to stay away from this kind of costly speculation.
This book will not teach you how to beat the market. However, it will teach you how to reduce risk,...
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