IPO Investing Update

Since investing in my first IPO, I wanted to give an update on how my IPO positions have performed. My first IPO, which I participated in through the LOYAL3 platform, was AMC. I held my position in AMC for just over 30 days prior to selling my shares for a 15.8% gain (including commissions of $0 – LOYAL3 does not charge commissions). Just before I exited my AMC position, LOYAL3 offered participation in another IPO, Santander Consumer USA Holdings, Inc. (SC), on a first-come, first-serve basis. I signed up for a maximum of $750 in IPO shares, and I received a full $750 allocation. SC priced $24 on 1/22/2014 and started trading on the New York Stock Exchange (NYSE) the next morning. Like AMC, SC’s opening price ($25.75) was higher than the IPO price that I received. I held SC for the next 22 days before selling all of my shares for a 6% gain. For me, the entire point of participating in these IPOs was to obtain experience with IPO investing, so my intention from the start was to only hold the positions for the short term regardless of how well or poor they did. Looking back, SC is down just slightly from my sell/exit price, but AMC is almost 7% higher.

During this same period, I was still trying to participate in an IPO through one of my primary online brokerages, Charles Schwab. After several months of trying to gain access to an IPO through Schwab, I eventually was allocated shares in the IPO for Intrawest Resorts Holdings, Inc. (SNOW), the parent company of Steamboat Springs and several other ski resorts. Although many IPOs actually start trading above the IPO price (including AMC and SC), it is important to recognize that IPOs can also lose value immediately and open below the IPO price. This was the case for the SNOW IPO. The shares priced at $12 on 1/30/2014 (which is the price that I paid for 100 shares, the minimum number of shares that Schwab allows investors to buy in an IPO). However, when the stock started to trade on the NYSE the next morning, the opening price was only $11.11, an almost 7.5% loss for me right away. The share price actually continued to decrease to a first day low of $10.80 prior to closing at $11.90. The stock stabilized from there and steadily increased over the next couple of weeks (the closing price for SNOW on 2/20/2014 was $13.70).

This is where one of the important aspects of IPO investing comes into play: although I was free to sell my IPO shares of SNOW at any point (including immediately when the stock started trading), if I sold them within 30 calendar days (not trading days) of the IPO date, that stock sale would be considered “flipping.” If I “flipped” my IPO shares, Schwab would restrict my participation in another IPO for 90 days. In addition, if I “flipped” shares more than twice in a rolling calendar year, I would be restricted from participating in another IPO for 365 calendar days. Other brokerages have their own “flipping” policies, so make sure that you know the “flipping” policy of your brokerage before investing in an IPO, especially if your strategy is to try and capitalize on a quick opening day gain, like what happened with the recent TWTR (first day return of 72.7%), PBPB (first day return of 119.8%), and VJET (first day return of 121.5%) IPOs, by selling your shares right away.

Disclosure: Long SNOW common stock.

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3 Responses

  1. scott says:

    Great post, Johnny! If I had the huge first day gains of the TWTR, PBPB, and VJET, like you mentioned at the end of your post, I might be inclined to still “flip” regardless of the consequences. If you had put enough money into them, a 70-120% gain might be worth the restriction of not being able to invest in another IPO for a year.

    Do you have percentage that you’d take even after a few days if it met “flipping,” or would you keep the stock for the minimum of 30 days?

  2. Gregory Reid says:

    What is Loyal3’s policy on flipping

    • scott says:

      Hi Gregory,

      Great question. On Loyal3’s FAQ page it says that IPO shares can be sold the first day they begin trading on the market. There’s no mention about this limiting future IPO participation, however, I’m not sure what their underlying policy is.

      Let us know if you find out!

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