NEW YORK (FMD Capital Management) -- This month's big IPO story has been all about the successful launching of the social media darling Twitter (TWTR). Nearly every media outlet and market watcher has been vocal about the pros and cons of owning the company's stock. There is obviously huge potential for a company with millions of established users and an innovative method for sharing information worldwide. But the company has yet to figure out an immediate path to profitability and is focusing on long-term solutions to add value for both shareholders and customers. That balancing act can alienate one or both sides, as they often have conflicting agendas.
In the wake of the orderly Twitter debut, many investors are now asking, what is the best manner to own the stock and when should it be purchased?
If history is a guide, the immediate backlash from high-profile social media or technology IPOs is typically negative. If you look at the first several months of trading from Facebook (FB), LinkedIn (LNKD), Yelp (YELP) and Groupon (GRPN) you can see a persistent downward trend develop as the excess hype is worked off. Once a bottom sets in, the stock price typically flies with tremendous momentum and volume.
This phenomenon may be a result of institutional and retail investors getting a closer look at the company's strategy, financials and roadmap for the future, which encourages ownership and confidence in the stock. In addition, as the stock price gains history on the exchange, it will eventually be incorporated into widely held indexes and funds that boost the share price as well.If you are bullish on the long-term prospects for Twitter, then by all means feel free to jump headlong into the fray and purchase the stock for the long run. Most investors won't be able to perfectly time the bottom and ride the ensuing strength if the company beats Wall Street expectations. Right now the stock is trading below its opening price, which is better than buying on day one. If you are like me and want to diversify your industry exposure, you may want to consider purchasing an ETF that holds Twitter, like the Global X Social Media ETF (SOCL) or the Renaissance IPO ETF (IPO). It was recently reported by Todd Schriber of ETF Trends that Twitter will be added to these funds on Nov. 13.
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