Be Careful of Technology IPOs

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By Jacob Maslow

raising funds for tech companyNow that the NASDAQ is close to reaching the 5,000 mark, it’s a good time to step back and take a long hard look at the technology IPOs and the pipeline. Why? Whenever the NASQAQ hits a record high, you definitely need to make sure you don’t take leave of your senses. It’s very easy to get caught up in the buzz, believe in the hype, and start buying stocks like crazy and assuming, consciously or unconsciously, that the party will continue.

This is precisely the kind of thinking that led to the very dramatic fall of the NASDAQ the last time it reached a record high fifteen years ago. You have to remember the amount of wealth that evaporated almost overnight thanks to that crash. Many people haven’t fully recovered. It is no surprise that many market observers view the NASDAQ’s recent rise with a large measure of ambivalence.

Part of the reason why the NASDAQ is going crazy is because of the heavy buzz and speculation with technology stocks. When it comes to buzz and hype, it doesn’t get any worse than with IPOs. I’m not saying that you shouldn’t buy into a technology IPO. However, you should do so with your eyes wide open, and with your ears shut to the hype. Take a long hard look at the company’s market positioning, its market share, and its revenue potential. Don’t get burned.

In this environment, it’s very easy to buy into the hype and hope that new IPO would log 30% to 50% gain the first week. Even if this happens with some stocks, you should still be very careful. Considering how mercurial the NASDAQ can be, it’s too easy to get burned. Consider yourself warned.

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