Investing in IPOs Can Be Risky Business

"Lightly used" stocks may be the better bet. Here are three recent initial public offerings to consider buying now.

Drooling over the prospect of investing in a "hot" initial public offering of stock, like Facebook, Groupon or Zynga? Brace yourself. The bulk of newly issued shares of the most promising new offerings go to institutions, with the relative handful of shares set aside for individuals "distributed with an eyedropper," says David Menlow, president of IPOfinancial.com, a public-offering research firm. Most investors who want shares in a newly public company are forced to buy in the first-day feeding frenzy, which rarely ends well for investors.

Consider what happened to those rushing for shares in LinkedIn (symbol LNKD) when it went public on May 19. The networking site’s shares opened at nearly double the $45 offering price and soared to more than $122 before finishing the day at $94.25. Today, the shares sell for $93.70 (all prices are as of the July 6 close).

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Kathy Kristof
Contributing Editor, Kiplinger's Personal Finance
Kristof, editor of SideHusl.com, is an award-winning financial journalist, who writes regularly for Kiplinger's Personal Finance and CBS MoneyWatch. She's the author of Investing 101, Taming the Tuition Tiger and Kathy Kristof's Complete Book of Dollars and Sense. But perhaps her biggest claim to fame is that she was once a Jeopardy question: Kathy Kristof replaced what famous personal finance columnist, who died in 1991? Answer: Sylvia Porter.