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Tread Carefully With IPOs

Q: I see that Uber Technologies’ initial public offering didn’t go too well. I thought IPOs were good investments. They’re not? — T.C., Anderson, Indiana

A: Jason Zweig offered a great definition of IPOs in his book “The Devil’s Financial Dictionary” (PublicAffairs Books, $20): “‘Initial public offering,’ or the first sale of a company’s stock by private owners who know everything about it to public buyers who know nothing about it. Marketed to the outside investors as an opportunity to get in on the ground floor of a growing business, the typical IPO instead presents the greatest opportunity to the insiders who are selling, because the associated hype enables them to cash out at inflated prices. IPO can thus more accurately be said to stand for ‘insiders’ private opportunity,’ ‘imaginary profits only’ or ‘it’s probably overpriced.'”

Uber’s stock debuted on the market priced at $45 per share, but closed out the day below $42 before falling as low as $36.08 the next day. As of this writing, a few weeks later, the shares are around $40.

While some newly issued stocks do soar initially, they often fall back to earth within a few months. It’s generally best to avoid IPOs, giving them a year or so to settle down while you review several quarters’ worth of financial statements.

Q: What are “day” and “GTC” stock orders? — K.P., Lake Charles, Louisiana

A: If you place a “market” order with your brokerage, it will be filled immediately, or as soon as possible. You can alternatively place a “limit” order, aiming for a better price, and you can designate that order as good for the day, or good till canceled (“GTC”). GTC orders remain in effect until they’re executed, they’re canceled or they expire.

Fool’s School

Balance Transfers 101

If you’re saddled with credit card debt — which can be particularly pernicious due to high interest rates — paying it off should be a priority. Balance-transfer credit cards can be a handy tool for that, but proceed with caution.

First off, know that you may need a good credit score to qualify for a good balance-transfer card. (You might get a significantly lower interest rate on your current card, though, just for asking for one.)

Next, read the details for any card you’re considering. One card might offer a 0% rate for 15 months, while another extends it for 21 months. Once the rate expires, you’ll be paying the card’s regular rate, so check the interest-rate range you might expect later. Some cards’ recent rates were in the 12% to 18% range, while others were more like 17% to 26%. That can make a huge difference. (Ideally, aim to pay off your debt in full before the 0% rate expires.)

Find out whether a fee will be charged on the amount you transfer, too. Fees of 3% to 5% are not uncommon, and with a large enough balance, that might not be worth it.

EDITOR’S NOTE: The Motley Fool is an investment column created by brothers David and Tom Gardner and distributed by Andrews McMeel Syndication.


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