By Dan Crimmins
NEW YORK (AdviceIQ) -- The market offers you few morsels as tempting as stock in a household name's loud new public offering. Here's why to beware.
Social media company Twitter had its initial public offering Nov. 7. In an IPO, a private company makes shares available to the public for the first time. Twitter's headline IPO saw a well-recognized, 7-year-old, unprofitable company with more than 232 million monthly active users enjoying a ton of hype before the opening bell even rang.
Unlike in the IPO of fellow social-media mammoth Facebook, Twitter's early trading left many investors pleased with the initial stock increase. Will the price hold?
You must question picking the right IPO as the only way to reach your financial goals. Nothing's further from the truth for the average investor. Our firm doesn't recommend investing in the shares of IPOs for at least 12 months -- especially media-hyped IPOs for which demand for the shares pressures stock pricing.
Hot stocks, like all items subject to tremendous demand, cost more. Only through time does the push and pull of supply and demand eventually settle on what markets establish as the fair price.
When your philosophy of portfolio stock exposure calls for broad diversification in global markets, one additional company added to a portfolio with 10,000 or more holdings becomes less urgent. We add most new companies to portfolios eventually but see no immediate need to buy into the ballyhoo of any one company. Patient trading ensures a stock's proper categorization.