Page 423 - How to Make Money in Stocks Trilogy

Money Management 293

communication networks), such as Instinet, SelectNet, Redibook, and
Archipelago, which bring buyers and sellers together within each network,
and through which orders can be routed and executed. The Nasdaq is a spe-
cialized field, and in many cases the stocks traded are those of newer, less-
established companies. But now even NYSE firms have large Nasdaq
operations. In addition, reforms during the 1990s have removed any linger-
ing stigma that once dogged the Nasdaq.
There are usually hundreds of intriguing new growth stocks on the Nas-
daq. It’s also the home of some of the biggest companies in the United
States. You should definitely consider buying better-quality Nasdaq stocks
that have institutional sponsorship and fit the CAN SLIM rules.
For maximum flexibility and safety, it’s vital that you maintain mar-
ketability in all your investments, regardless of whether they’re traded on
the NYSE or on the Nasdaq. An institutional-quality common stock with
larger average daily volume is one defense against an unruly market.

Should You Buy Initial Public Offerings (IPOs)?
An initial public offering is a company’s first offering of stock to the public.
I usually don’t recommend that investors purchase IPOs. There are several
reasons for this.
Among the numerous IPOs that occur each year, there are a few out-
standing ones. However, those that are outstanding are going to be in such
hot demand by institutions (who get first crack at them) that if you are able
to buy them at all, you may receive only a tiny allotment. Logic dictates that
if you, as an individual investor, can acquire all the shares you want, they are
possibly not worth having.
The Internet and some discount brokerages have made IPOs more acces-
sible to individual investors, although some brokers place limits on your
ability to sell soon after a company comes public. This is a dangerous posi-
tion to be in, since you may not be able to get out when you want to. You
may recall that during the IPO craze of 1999 and early 2000, there were
some new stocks that rocketed on their first day or two of trading, only to
collapse and never recover.
Many IPOs are deliberately underpriced and therefore shoot up on the
first day of trading, but more than a few could be overpriced and drop.
Because IPOs have no trading history, you can’t be sure whether they’re
overpriced. In most cases, this speculative area should be left to experi-
enced institutional investors who have access to the necessary in-depth
research and who are able to spread their new issue risks among many dif-
ferent equities.