Pinterest and Zoom Have Had Exciting IPOs—Here’s What to Know if You’re Thinking of Investing

Excerpt from CNBC.com, published April 22, 2019

 
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How long you should wait before investing

These dips in stock prices are standard for companies making their debuts, Eric Walters, a Colorado-based certified financial planner, tells CNBC Make It. Still, the data highlights why everyday investors should probably wait 12-18 months before buying stock from a company fresh off an IPO.

Walters says there are a few reasons for this:

  • Prices tend to fluctuate significantly as corporate insiders and venture capitalists sell their shares.

  • The company will be working out how to operate as a publicly traded company.

  • The people underwriting a company’s IPO aren’t necessarily interested in creating long-term value for an IPO investor; they’re often interested in increasing short-term profits.

“They want to increase excitement for a stock to maximize the gain on the actual IPO,” says Walters.

Additionally, Walters says, investors should wait to see if management shifts, which is common after an IPO and can influence stock price. Waiting a year to a year and a half to buy allows these pressures to die down. Plus, you can get a sense of how the company will actually operate in the long term.