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How to Invest in the 2014 IPO Market

[Editor's Note: This inside look at profiting from the 2014 IPO market was first published March 19 in Michael A. Robinson's Strategic Tech Investor.]

High-tech IPOs are white hot right now, which is why many investors are trying to figure out how to invest in the 2014 IPO market.

But it's easy to look in the wrong places for IPO profits…

For example, over the last month or so, I'd bet that I've seen three or four dozen stories about the initial public stock offering of King Digital Entertainment, the company that markets the smash-hit "Candy Crush Saga" game for smartphones.

And with every single story I just shake my head and grin.

I grant you that King Digital is currently a better financial proposition than, say, arch-rival Zynga Inc. (Nasdaq: ZNGA) – which is rolling up losses in a way that should scare investors away.

But as alluring as the IPO market can be, it's not a place to play unless you have the "connections" needed to access the best deals – or have a special "angle" to play.

I can't help you with the connections.

But I can give you that special angle.

And that angle will give you access to the profits that roll out of the IPO market – but at a much lower level of risk.

Here's how.

An Insider's View

As a tech-sector insider, I've watched, played, and profited from IPO deals for years. So I understand the allure. I mean, who wouldn't want to pull down a year's worth of profits from the one stock-offering deal that everyone has been talking about?

And right now, the allure is as strong as it's been in years.

In that regard, 2013 ranks as a milestone in the five-year rally from when the market hit bottom in early 2009.

Market research firm Dealogic says there were roughly 230 U.S.-listed IPOs issued last year – a 58% increase from the 145 deals of 2012 and a high-water mark that came five years after the bear-market bottom of 2009.

Those offerings raised $61.7 billion, up 31% from a year earlier – and the largest annual haul since 2007.

Tech investors were especially well rewarded. Although these stock offerings averaged a 33% return, the tech-focused deals generated an average gain of nearly 60%, Dealogic says.

As good as all that sounds, the best is yet to come. A recent report by consultant Ernst & Young says 2014 is shaping up to become a "record year" for worldwide new issues.

"The strong recent uptick in listings indicates a recovery in investor confidence and better market fundamentals," the report says. "The overall trend is an improving one, and activity should trend noticeably higher in 2014."

Little wonder folks are drooling about the King Digital deal, which could value the company at $7.6 billion.

But there's just one problem…

Most retail investors won't profit from this deal … because they'll never get a piece of it.

An Insider's Game

It's a hard reality to accept: If you're not an "insider" – like the venture capitalists, investment bankers, or early employees who have a connection with the company, and were granted shares in return – you'll be watching from afar when an IPO makes its debut.

And even if you had a shot at some of the small allotment that makes its way to brokers, keeping track of when a new issue is to hit the market is really tough for an individual investor to do.

It's not unusual for both the timing and offering price to change several times in the weeks before the IPO begins trading.

Given all these factors, most retail players end up buying the stock after it starts trading – at the inflated post-offering price. That means you can easily lose money – even a lot of money – if you snag the shares at their peak, and then watch them close down from that apogee for the session.

But don't worry: there's a better strategy for investing in IPOs …

Join the conversation. Click here to jump to comments…

About the Author

Michael A. Robinson is one of the top financial analysts working today. His book "Overdrawn: The Bailout of American Savings" was a prescient look at the anatomy of the nation's S&L crisis, long before the word "bailout" became part of our daily lexicon. He's a Pulitzer Prize-nominated writer and reporter, lauded by the Columbia Journalism Review for his aggressive style. His 30-year track record as a leading tech analyst has garnered him rave reviews, too. Today he is the editor of the monthly tech investing newsletter Nova-X Report as well as Radical Technology Profits, where he covers truly radical technologies – ones that have the power to sweep across the globe and change the very fabric of our lives – and profit opportunities they give rise to. He also explores "what's next" in the tech investing world at Strategic Tech Investor.

Read full bio

  1. Williamson | March 21, 2014

    Interesting analysis of the state of private equity. The IPO market is up and the prospects look good for PE's looking for an exit, private equity firms opting to exit their portfolio companies via an IPO will find it easier now with the JOBS act making it easier for emerging companies to go public. I work for McGladrey and there is a whitepaper "IPOs are hot—are your portfolio companies ready?" it offers good information readers will find it helpful.

  2. catie | April 11, 2014

    awesome website

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