Published On: October 20, 2015

The Ferrari initial public offering on Wednesday will likely reel in thousands of unsophisticated investors.  Unfortunately, when it comes to IPOs, brokers often sell the sizzle to retail investors and many times have an easy pitch in what is often a poor performing stock.  Mix in an extraordinarily “sexy” brand like Ferrari along with the perception that IPOs lead to quick profits and my fear is thousands of investors will get left holding the bag in the form of losses in Ferrari.  There is a long history of investors getting burned with high profile IPOs.  For every Google, there are dozens of Alibabas, Groupons and Zyngas.  And often wonderful companies like Facebook are simply overvalued in terms of the IPO pricing with investors facing a massive drop before the stock rebounds.

Almost as problematic are investors who buy IPOs right after they start trading and get filled at a much higher price.  Remember, only the very small number of people who get the IPO shares enjoy that large pricing pop that gets reported in the media.  All retail investors get the shares at the first publicly traded price which is far removed from the prices that investors who get the IPO shares receive.

It feels a little bit like the Groundhog Day movie when it comes to these high profile IPOs.  Remember, IPO REALLY stands for “Its Probably Overpriced”.

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