Getting in early on a hot new stock may seem like a good idea. After all, if you could turn back the clock and invest $500 in tech companies five years ago, you'd have doubled your money and then some. And people who were early investors in Tesla are now seeing huge returns as the company's share price sets new records.
But investing in individual stocks is risky, especially when the company has just recently gone public, or engaged in an initial public offering (IPO). "It's a dicey game, to play the IPO market," says Scott Colbert, chief economist at Missouri-based Commerce Trust Company.
Among the high-profile companies that went public last year, some saw their stocks fizzle — or at least not live up to the hype, such as Uber and Lyft. Others, like Beyond Meat, have soared.
Video by Stephen Parkhurst
While some companies go on to be successful, many others fail. In fact, research shows that most investments in newly public companies lose money after five years. Here's a look at how some of the most talked-about IPOs of 2019 look two months into 2020, based on their IPO price and the price as of the market open on February 18.
Video by David Fang
While some of the hottest IPO stocks disappointed investors last year, stocks going public for the first time did well.
"The long-awaited debuts of megaunicorns Uber and Lyft were megabusts," Kathleen Smith, principal at Renaissance Capital, told CNBC in December. "But beyond these headline-grabbing disappointments, the IPO market had a mostly good year."
That doesn't mean your financial advisor is going to tell you to invest in the next big IPO, however. "It's not in line with our approach to investing, so we're not out there looking for the next great IPO," Jenifer A. Aronson, managing partner at Illinois-based Mosaic Fi told Grow last year. Instead, most financial professionals recommend that investors, especially new investors, focus on diversified, long-term investments.
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