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You can make a lot of money in high-tech initial public offerings (IPOs).
I have.
And so have my readers – plenty of times.
But you must follow Your Tech Wealth Blueprint's second rule for grabbing massive tech profits – "separate the signals from the noise" – and avoid Wall Street's hype machine.
To see what I mean, let's put the recent IPO from the photo-centric social network and messaging service Snap Inc. (Nasdaq: SNAP) under our microscope.
When Snap began trading March 2, it was the most hyped tech IPO of the past few years. Investors were told they were crazy if they didn't get in on the action of a hot young firm with 161 million daily users and $405 million in 2016 sales.
You can bet that Morgan Stanley, the investment bank that underwrote the IPO, stood to bank millions in fees.
Fair enough. That's how investment banks and IPOs work.
But four months after making all that money, the sharks at Morgan Stanley pulled the rug out from under Snap investors, costing them a combined $3 billion.
Snap shares are now down 45% from their IPO price.
Outrageous.
But you can avoid all that – and still make a ton of money on IPOs.
Here's how…
This Stinks
Don't get me wrong.
As a longtime advisor to Silicon Valley startups, I'm a big believer in the value of IPOs. The chance to take exciting new tech firms public and make their founders and early investors – and, yes, investment bankers – rich remains a driving force beyond behind Silicon Valley's huge success.
And new stocks are important for the overall market's health. For a bull market to keep running, it needs a steady supply of fresh cash. Nothing brings in money quite as much as hot new IPOs.
But there's a big problem. Most retail investors fare poorly in the early days and months of trading a new stock. This is when the shares are most volatile and subject to profit taking after employees and others bound by lock-up periods can sell their shares.
The case of Snap shows another big red flag, this one direct from Wall Street – disreputable practices from the likes of Morgan Stanley.
Here's what I'm talking about. Shortly after Snap issued its first earnings report as a publicly traded firm, on July 11, its own investment bank downgraded the stock. Shares have lost more than 20% since then.
Yes, I know that the analysts work separately from the underwriters – but the whole thing smells bad.
That's why I believe now is a great time for tech investors to take a hard look at this…
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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.