Page 424 - How to Make Money in Stocks Trilogy

294 BE SMART FROM THE START

This is not to say that you can’t purchase a new issue after the IPO when
the stock is up in its infancy. Google should have been bought in mid-Sep-
tember 2004, in the fifth week after its new issue, when it made a new high
at $114. The safest time to buy an IPO is on the breakout from its first cor-
rection and base-building area. Once a new issue has been trading in the
market for one, two, or three months or more, you have valuable price and
volume data that you can use to better judge the situation.
Within the broad list of new issues of the previous three months to three
years, there are always standout companies with superior new products and
excellent current and recent quarterly earnings and sales that you should
consider. (Investor’s Business Daily’s “The New America” page explores
most of them. Past articles on a company may be available.) CB Richard
Ellis formed a perfect flat base after its IPO in the summer of 2004 and
then rose 500%.
Experienced investors who understand correct selection and timing tech-
niques should definitely consider buying new issues that show good positive
earnings and exceptional sales growth, and also have formed sound price
bases. They can be a great source of new ideas if they are dealt with in this
fashion. Most big stock winners in recent years had an IPO at some point in
the prior one to eight or ten years. Even so, new issues can be more volatile
and occasionally suffer massive corrections during difficult bear markets.
This usually happens after a period of wild excess in the IPO market, where
any and every offering seems to be a “hot issue.” For example, the new issue
booms that developed in the early 1960s and the beginning of 1983, as well
as that in late 1999 and early 2000, were almost always followed by a bear
market period.
Congress, at this writing in early 2009, should consider lowering the cap-
ital gains tax to create a powerful incentive for thousands of new entrepre-
neurs to start up innovative new companies. Our historical research proved
that 80% of the stocks that had outstanding price performance and job cre-
ation in the 1980s and 1990s had been brought public in the prior eight to
ten years, as mentioned earlier. America now badly needs a renewed flow of
new companies to spark new inventions and new industries . . . and a
stronger economy, millions more jobs, and millions more taxpayers. It has
always paid for Washington to lower capital gains taxes. This will be needed
to reignite the IPO market and the American economy after the economic
collapse that the subprime real estate program and the credit crisis caused
in 2008. I learned many years ago that if rates are raised, many investors will
simply not sell their stock because they don’t want to pay the tax and then
have significantly less money to reinvest. Washington can’t seem to under-
stand this simple fact. Fewer people will sell their stocks, and the govern-