IPO Volatility Is Too Often a Siren Song

These days, there are as many different types of investors reading TheStreet.com as there are places to put your money. That's one of the things that makes my job so great. It's also the very one that makes it so difficult. Hey, you take the good with the bad.

At a superficial glance the IPO market may seem cut and dried -- new companies go public, you buy the stock, you sell the stock. Right?

Wrong! (sorry Jim, I'll pay the royalty. I needed the word).

Like I said, there are many different types of investors out there and not all of them are suited to buy newly issued stocks. Not by a long shot. IPOs, by their very nature, pose a very distinct and very real set of risks to those who choose to play. If these risks are outside of what is appropriate for you and your situation, then you must accept this fact and look to other investment vehicles. Only you can make this call. Believe me, if there is one thing in life that you must be honest with yourself about, it is your ability to safely assume a particular risk.

One of the most potentially damaging risks that IPO buyers face is that of volatility. IPOs, more than any set of stocks I know, experience extremely fast and violent price moves. These moves, for a buyer who is on the right side of a trade, are the very reason that IPOs are so popular. Where else in the world can you set your hook into an investment that can double or triple in the first minute of trading? Nowhere. This is the quality that, time and time again, lures inexperienced, arrogant or just plain sloppy investors to their own destruction.

Volatility is like a powerful drug. It scares the hell out of those who come in contact with it, but the rush is so intense and so temporarily satisfying that the risks are largely ignored. Often a new investor, unaware of the real risks in a particular trading style or method, will throw all caution aside and make a particularly large and dangerous bet on the market, and win. While this may build self-confidence and even some measure of wealth for the individual, this is probably the worst thing that can happen early in an investor's career. Taking on market risk without fully understanding all of the possible outcomes, as well as the total of one's exposure, can be a career shortening trait.

So, getting back to you. If you've been involved in IPOs for some time, you've no doubt witnessed some of what I'm talking about, maybe you've even stepped in it a couple of times and have learned the lessons. For you, there's little I can teach you about the risks of volatility. You've got the scars on your back and they're the best reminders a person can have. If you're new on the scene, however, and cannot fully grasp what I'm saying, it would do you more than a little good to sit back and watch a number of IPOs open and trade their first sessions before deciding if this market is for you. Pick any number of the issues that are pricing this week and just watch. Here are some things to look for.

In a particularly hot or buzzy deal watch the opening print and make a note of it. Now go back at the end of the day and pull an intraday chart of the stock's price. Ask yourself these questions:

• Did the issue go immediately higher or did it fall apart under selling pressure?
• Do there appear to be many prints at the opening price or was that number attainable by only a very, very select few sellers?
• Looking at the chart would it have made more sense to buy the stock at the open, the close or at some point mid-day?

This may seem like a fantasy-league exercise, and believe me, it is. No doubt what you'll witness on each deal will yield completely different answers to the above questions. Because of this you need to be careful not to draw any general conclusions about how IPOs trade. Take the time, however, to go through the exercise as many times as you can, as there are a number of lessons to be learned here. The most important is this.

Every IPO trade brings with it its own unique set of risks and rewards. Knowing what is possible and being open to what may happen is essential to managing the risks. Allowing yourself the time to watch and to learn how new issues trade before you assume the risks of these highly volatile instruments can help lay the foundation for a long, highly disciplined and successful investing career. Remember, everything you do is predicated on what you know -- or at least it should be. That's what separates winners from losers.

Let's look at this week's deals:

ASAT HOLDINGS
IPO:	(ASTT:Nasdaq)	Provider of semiconductor assembly and test services
Deal size:	20,000,000
Price range:	11.00 - 14.00
Led by:	Chase H&Q
My take: I know almost nothing on this one except that many of our pro users have low expectations of the deal. Non-EDGAR filing. Each ADS represents five ordinary shares.

AXCELIS TECHNOLOGIES
IPO:	(ACLS:Nasdaq)	Producer of ion implantation equipment
Deal size:	15,500,000
Price range:	20.00 - 22.00
Led by:	Goldman Sachs
My take: Another profitable semiconductor IPO. It is so hard to ignore these when they make so much money!!! The analysts be damned, I like it.

DIVINE INTERVENTURES
IPO:	(DVIN:Nasdaq)	Engaged in business-to-business, or B2B, e-commerce through a community of partner companies
Deal size:	14,285,000
Price range:	9.00 - 10.00
Led by:	Robertson Stephens
My take: 7/7/00 -- Price reduced from 13 - 15. 6/23/00 Shares reduced from 20 million and price raised from a range of 6 - 8. 4/4/00 -- Shares reduced from 50 million. Folks, this thing is toast. Stay away.

ENTEGRIS
IPO:	(ENTG:Nasdaq)	Provider of materials management solutions to the microelectronics industry
Deal size:	13,000,000
Price range:	13.00 - 15.00
Led by:	Merrill Lynch
My take: 6/19/2000 -- Price reduced from 15.00 - 17.00. Price reductions in this environment have to be taken seriously, but this one has such great fundamentals. Problem is, I keep getting burned on profitable companies. I'm cautious on this one.

I MANY
IPO:	(IMNY:Nasdaq)	Provider of Internet-based solutions and related professional services
Deal size:	7,500,000
Price range:	9.00 - 11.00
Led by:	Robertson Stephens
My take: Robbie Stephens knows health care and they know Internet solutions deals. I don't think there's a big market for either right now. I'm not real confident in this one.

INFINITE TECHNOLOGY GROUP
IPO:	(ITGL:Nasdaq)	Independent supplier of information technology (IT) services
Deal size:	2,000,000
Price range:	10.00 - 12.00
Led by:	Auerbach Pollak
My take: I have little faith in these underwriters, and domestic IT deals, no matter how profitable, have largely been ignored by this market. Flat.

NETWORK ENGINES
IPO:	(NENG:Nasdaq)	Develops, markets and provides integrated, scalable and powerful server appliances
Deal size:	5,500,000
Price range:	13.00 - 15.00
Led by:	Donaldson Lufkin & Jenrette
My take: 6/20/2000 Shares reduced from 6.25 million and price increased from a range of 11 - 13. These people make pretty, light and powerful rack server hardware. The quality is great and the business is jumping. I like it a lot.

OMNIVISION TECHNOLOGIES
IPO:	(OVTI:Nasdaq)	Provider of highly integrated, single-chip semiconductor imaging devices
Deal size:	5,000,000
Price range:	9.00 - 11.00
Led by:	Robertson Stephens
My take: Yes, I know the early warning radar is going off on semis, but I believe in my heart that there will always be a market for the stocks of well run, profitable companies. If you have the time, read the financials on this one. They are impressive.

PAIN THERAPEUTICS
IPO:	(PTIE:Nasdaq)	Developing a new generation of opioid painkillers
Deal size:	5,000,000
Price range:	11.00 - 13.00
Led by:	Thomas Weisel
My take: Yes, analgesics are a huge market, but this company has zero in revenue and as such carries big risk at this stage. The lead underwriter gets my vote, the rest of the team are second string.

SOHU.COM
IPO:	(SOHU:Nasdaq)	Internet portal in China
Deal size:	4,600,000
Price range:	16.00 - 19.00
Led by:	CS First Boston
My take: 6/28/2000 Price range increased from 13 - 16. Few would argue that China represents a huge risk in the IPO market these days. You may miss a quick pop if you stay away, but I think the risk is much higher than the potential.

SUNRISE TELECOM
IPO:	(SRTI:Nasdaq)	Manufactures and markets service verification equipment to prequalify, verify and diagnose telecommunications and Internet networks
Deal size:	4,000,000
Price range:	11.00 - 13.00
Led by:	Chase H&Q
My take: 6/12/2000 Price range increased from 10 - 12. You may question the market size for this company's products, but don't. The revs and the PROFITS they generate are proof enough. This one looks good.

TRITON NETWORK SYSTEMS
IPO:	(TNSI:Nasdaq)	Provider of broadband wireless equipment
Deal size:	5,500,000
Price range:	10.00 - 12.00
Led by:	CS First Boston
My take: 6/20/2000 Shares decreased from 6.5 million and price increased from a range of 8 - 10. Here's a wireless infrastructure/fiber networking play that ought to work -- at least right out of the box. Remember, buying at the issue price is a world away from buying in the aftermarket. Know the difference.

TURKCELL
IPO:	(TKC:Nasdaq)	Provider of mobile communications services in Turkey
Deal size:	96,000,000
Price range:	16.49 - 20.07
Led by:	Goldman Sachs
My take: I finally got my hands on a readable copy of the prospectus and I see no compelling reason to expose yourself to this deal. Turkey is a problematic market on many levels and for many reasons.

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