Following our rules: Investing in the stock market

Article Excerpt

We avoid most new stock issues for a very simple reason: Human nature dictates that new issues will generally come to market when it’s a good time for insiders or the company to sell. That needn’t be, and often isn’t, a good time for you to be buying. If, while you were investing in the stock market, you bought every new issue that came out, you’d wind up with mediocre long-term results, at best. However, you won’t be able to buy all new issues. That’s because some new issues are underpriced when they come to the market, so they attract a lot of buyers and shoot up as soon as trading begins. When investing in the stock market, brokers can spot these “hot” new issues ahead of time, if only because of the reaction they get from their first tentative selling efforts. Hot new issues are always in short supply, so brokers reserve them for their most profitable clients. These are generally those…