Remember, Reality Is Your Friend
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Last year at this time, in a column titled "A Year To Remember, With Awe," I detailed the monthly results for Internet public offerings in 1999, which saw an unprecedented number of 'Net IPOs and first-day run-ups.
Noting that 86 of 258 Internet stocks finished their first day of trading with gains of 100 percent or more from their respective offer prices, I wrote, "With that kind of record, and with billions of dollars in venture funding priming the IPO pipeline with aspiring Internet stars, 2000 promises to be just as frenetic."
It didn't quite turn out that way, did it? Good thing, too, because 1999 was an illusion. (Or, more accurately, a delusion.) It couldn't last because it wasn't real. It was a fantasy, a feeding frenzy created by a number of factors, including greedy venture capitalists, greedy underwriters and greedy investors empowered as never before by technology.
No longer reliant on stock brokers, everyday people could place bold bets on the Internet revolution without leaving their computers. So what if they couldn't get shares at the offer price, like the large institutional investors and other Wall Street insiders? Sure, they'd like an allotment of VA Linux Systems shares at $30, but if they have to wait until the second day of trading and pay $239 for each share, well, so be it: The price is going up from there anyway! (Current LNUX price: $8.13.)
No matter what you've read in the stock chat rooms, the sad fact is that most small investors who jumped into the Internet IPO market in 1999 lost a ton of money because the game was rigged in favor of the heavy-hitters.
And that's why the implosion of the Internet IPO market in 2000 should be greeted with great relief by small investors. For only when the regular rules of gravity are in place do small investors stand a fighting chance. Anything else - to quote the infamous boxing promoter Don King - is just trickeration.
Here are the final numbers for Internet IPOs in 2000 (reality), along with results from 1999 (fantasy):
Average First-Day Return (By Month)
10 Best Internet Debuts of 2000