Booyah Breakdown: ABCs of IPOs

Then go through the audited financial information carefully. But since you won't have much of it available, you're taking a risk. That means IPOs should be considered in the "aggressive" part of your overall portfolio, says Bob O'Hara, vice president of development at the National Association of Investors.

Once you find an IPO that you like, the easiest way to get those shares is to have an account with the bankers working on the deal. So if you're working with say, Morgan Stanley, and it's doing the work for an IPO, your broker might be able to get you in on the action.

But your broker might not be forthright about the in-house deals, so check the company's Web site to see what its working on. Or go to the "upcoming IPOs" section on ipohome.com, which is run by investment management firm Renaissance Capital. It lists all the upcoming IPOs and their underwriters.

If that doesn't work, try the fund world. For direct exposure, you can try Renaissance Capital's (IPOSX Quote)IPO Plus Aftermarket fund, which was up about 10% for 2006 and focuses solely on IPOs.

Get the Key to the Lockup

If you can't get in on the IPO near the offering price, consider being patient and waiting until the lockup period on those IPO shares expires. At that point, the stock price usually takes a dip.

Here's why.

The lockup period is a predetermined amount of time following the IPO -- usually six months -- that the employees and close associates of the company who were given IPO shares can't sell that stock.