Stay Away From IPO’s

IPO’s (Initial public offerings), in case you did not know, are when companies decide to go public.  They create an intitial discounted sale price of their stock to the public.  This may seem like a good idea to get in on a stock early but it is very risky.  In the interest of long term income, risk is something we want to minimize.

On the other hand when Google first went IPO people knew it was going to explode, so many people got in on it.  I had a friend who was lucky enough to get in on GOOG’s IPO and watched the shares go from $89 to over $400.  Microsoft would have been THE IPO to invest in but many missed the boat.  Unfortunately, it is really hard to figure out which companies are going to be the next Google or Microsoft.  There are many companies with many great products or ideas but never make it.  It is because there are too many factors.

This is why I recommend staying away from IPO’s if you are interested in building long term income.  They simply don’t fit into this strategy.  You need to invest fairly large amounts of money to create large income so you really want to stay away from risky stocks.  Stocks that have a long history of stability are the types of stocks you need to invest in because you can sleep easier knowing you are not going to suddenly lose everything over night.  Although, it is possible it is very unlikely.

Good examples of companies with a long standing history of stability and growth are JNJ, MMM, HRL, KMB.  Although these are quarterly dividend payers they are very stable.  My goal is to find the safest monthly dividend stocks.

What are your thoughts on IPO’s?

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