Little companies are "going public" at a record rate, and
individual investors are increasingly being called on to buy
their newly issued stock. Individuals are biting up these
speculative issues, too, helping to create a virtual feeding
frenzy in the so-called IPO, or initial public offering, market.
"It has taken four or five years for the individual to thaw
out from his IPO chill," said Lloyd Greif, founder of Greif
Co., a Los Angeles-based investment house. "But now they're
responding to opportunity knocking on the door."
Indeed, initial public offerings have taken off. About $39.4
billion in these shares were sold in 1992 compared with $25.1
billion in all of 1991 and $10.2 billion the year before,
according to Securities Data Co. The market dried out in 1989 and
1990 because of sorry stock performance, Greif added.
No one knows exactly how much of today's record total has gone
into individual _ vs. institutional _ hands, but it's generally
accepted that individual investors are a big part of the current
boom, said Hartley T. Bernstein, partner at the New York law firm
of Brandeis, Bernstein Wasserman.
And now that the value of small company shares is soaring, the
initial public offering market is being pushed to even greater
heights. There are 733 companies set to go public within the next
few months, vs. 587 in all of 1992, Greif noted. Demand for some
shares is five to 15 times the supply, he added.
When Snapple, a maker of popular flavored teas, went public
earlier this year, for example, the offering was so hot that the
company's share price soared to more than $33 from $20 in just a
matter of hours.
Yet, investing in initial offerings can pose substantial
Although some companies that sell their shares to the public
for the first time have long track records, many others are
fledgling firms with little business history. That makes it more
difficult to predict whether they will prosper or falter. More
speculative issues come to market in times like these because
sales are brisk for virtually everything. In less heated times,
many speculative companies would not be able to find buyers for
Once public, some of new companies are thinly traded, which
means it could be tough to buy or sell their shares. That can
cause you to pay too much going in and get too little going out.
And, finally, the market for newly public companies is
exceptionally volatile and often fueled by hype. Once the hype
evaporates it is not unusual for the stock price to fizzle, too _
sometimes for good reason.
The classic horror story is ZZZZ Best, which went public in
1986 for $4 a share. The carpet cleaning company's stock price
soared to more than $18, while the company's teen-age founder
toured the talk-show circuit and wrote a book about making it big
in America. …