"Investors hum to frenzied beat of the IPO Gold Rush"
This is the screaming headline on page 1 of The Business Times today 8 Nov 2010.
What does this mean for investors - holding stock portfolios or cash to buy?
Usually an IPO rush is an indication of a bullish market sentiment - especially when even neighbourhood uncles and aunties start walking in to open brokerage accounts.
And this is the time when value investors should start becoming wary. Afterall, companies wouldn't be bothered to list their shares in the open market unless they know they will get maximum bang for their buck i.e. money for their shares.
You rarely see stocks being sold in the primary market (i.e. by the companies themselves) during down turns when the bears rule the minds and hearts of 'investors' (i.e. speculators and the general public). In fact, during such times, companies tend to BUY BACK their own undervalued shares from the pessimistic herds, shoring up the holdings of the fewer investors that remain.
Does that mean that investors start hoarding cash and stop buying? Not at all. What this author suggests is that we need not buy the hot stocks or markets alone at this time (or any other time for that matter).
Let us fall back to the ground rules of sound investing - diversification, liquidity, rebalancing and dollar cost averaging. And the few savvy stock pickers among us can even go contrarian i.e. choosing ignored, "unloved" but solid securities to park a portion of their net worth.
