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Investing in IPOs: Why You Should Think Twice About Facebook (Nasdaq: FB)

Ever since the Dutch East India Company became the first to issue stocks and bonds to the public in 1602, investors have seen initial public offerings (IPOs) as the road to riches.

The current hype surrounding the Facebook IPO is just one example.

But investors tempted by Facebook (Nasdaq: FB) may want to think back to the dotcom craze of the late 1990 s. You'll remember it spawned a feeding frenzy among investors chasing after internet IPOs on an almost daily basis.

It wasn't long before investors on Main Street took the bait after watching hordes of new college graduates in Silicon Valley become instant millionaires.

But as companies with unproven business models executed massive IPOs with sky-high prices, every day investors who succumbed to the siren call got clobbered.

Pets.com for instance, raised $82.5 million in an IPO in February 2000 before imploding nine months later. And EToys.com stock went from a high of $84 per share in 1999 to a low of just 9 cents per share in February 2001.

In both cases, small investors were left holding the bag. The point is IPOs have always been high-risk, high-reward.

So, what is an IPO anyway? How do people get rich-and go broke-- so fast? And, more importantly, should you invest in an IPO like Facebook for instance?

Here's what you need to know...



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