IPO and New Issues

Always be suspicious if someone tries to get you to hurry-up and invest in
a new issue without first providing you a prospectus to read. I would make
sure that the prospectus calls for the company to give at least 40 to 60%
of the initial offering to the general public.

I would not invest in any new issue that plans to use the proceeds from
the offering to repay any loans from the management. This is a sure sign
that the company is more interested in the welfare of the management
and not the stockholder.

You should absolutely review the management's background to be sure
they have the experience necessary to run a successful company. Make
sure that the management personnel are going to devote 100% of their
time to running the company.

Make sure the company is not involved in any major legal actions that
might affect the success of the company. Check management salaries. I
like to see modest salaries with bonus incentives for meeting goals. If it
looks like everyone in management has a cushy deal, stay away!

I'm not real keen on new issues. I've always felt that the lucky few and
all the privileged insiders that got the stock at fire-sale prices, were the
only sure winners. This is not to say that you can't make good money with
a new issue. You can. Sometimes quite a lot.

I'll readily admit that some very serious money has been made in the new
issue market. Most of the stocks we'll be following went public and soared
to high heaven. I'd much rather follow a stock that has based-out and is
trading in a somewhat predictable manner. 

Never pay more for a new issue than the price that it's first offered. Most
new issue buyers hope for a big, quick move, so they can jump back out.
Quite a few new issues take-off like a rocket to unrealistic highs, only to
fall back to more reasonable prices. Most are overpriced anyway.

Never invest any money in a new issue that trades in the "pink-sheets".
Make sure that the new issue will be listed on one of the major stock
exchanges. If it's on a system with lesser requirements than NASDAQ's,
don't buy it.