Tags: Hulbert | IPOs | venture capital | volume

Hulbert: Proliferation of IPOs Is a Bearish Indicator

By    |   Monday, 12 May 2014 10:50 AM

Initial public offerings (IPOs) are popping up right and left, but that's not a good sign for these stocks, says Mark Hulbert, editor of Hulbert Financial Digest.

The market saw 77 IPOs in the first four months of 2014, according to Jay Ritter, a finance professor at the University of Florida, Hulbert writes in The Wall Street Journal.

If that rate continues for the rest of the year, IPO volume would register the highest total since 2000, when the dot.com bubble popped.

Editor's Note: Secret Wall Street Calendar Uses Strange ‘Crash Alert System,’ Gets 18.79% Annual Returns

"IPOs that come to the market during low-IPO-volume periods tend to have better long-term performance than those coming during high-volume periods," Ritter explains.

According to Ritter's calculations, since 1980, companies that went public in years with fewer than 100 IPOs did 8 percent better than the overall stock market did during the three years following its debut, while those that went public in years when there were more than 200 IPOs did 21 percent worse than the broad stock market.

Meanwhile, Josh Lerner, a professor of investment banking at Harvard Business School, has studied the timing of venture capital deals dating back to the 1970s, Hulbert says, and discovered that venture capitalists "appear to be particularly proficient at taking companies public near market peaks."

In recent months, "venture capital firms appear to have been just shoving [IPOs] out the door," Martin Kenney, a venture capital expert at the University of California, Davis, tells Hulbert.

It "seems like this is pretty close to the top" not only of IPOs, but maybe the overall stock market too, Kenney said.

In a sobering piece of news for retail investors, USA Today, using data from IPOScoop.com, found that stocks from the 242 IPOs of the last 12 months have dropped 3.1 percent on average from the close on their first day of trading.

The results are better for those who got in on the IPO prices. The stocks have risen 12.3 percent on average from those levels.

Editor's Note: Secret Wall Street Calendar Uses Strange ‘Crash Alert System,’ Gets 18.79% Annual Returns

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Initial public offerings (IPOs) are popping up right and left, but that's not a good sign for these stocks, says Mark Hulbert, editor of Hulbert Financial Digest.
Hulbert, IPOs, venture capital, volume
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2014-50-12
Monday, 12 May 2014 10:50 AM
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