Hype surrounds a hot offering, such as LinkedIn, and the details of the ensuing months are covered more episodically. Folks move on to the next hot IPO — last week, a Russian Internet company, Yandex (“The Russian Google“), grabbed headlines with a hot offering. Its shares soared 40% on opening day…READ MORE.
My Take: The linked article does a great job of giving a brief real world example of market hype and what happens when the ‘tide turns.’ I like how the author points out that post-IPO inside investors are locked into their positions for 6 months. Being that the insiders often control a sizable amount of shares outstanding, the stock can certainly bet set for a dip once these investors have the ability to sell their shares.
The main takeaway I get from reading such an article is if you’re going to invest in areas where there is a lot of media buzz or the company/sector is seen as trendy, then you need to have a clear exit strategy. This doesn’t mean you need to completely exit the position, but can you set price points in which you sell part of your position? You don’t have to be either 100% right or wrong to be a successful investor.