IPO does not necessarily have better return than other stocks. For example, as of 4/1/2011, IPO Composition Index has a return of 3% for the year, while S&P 500 has 5% return for the year.
The key for IPO stock is to pick the right stock to invest, and have better control of your emotion (i.e. do not buy just because other people say so.). It is perfectly fine to miss 10 hot IPO, as long as you can catch one you know. (the Black Swan theory applies here pefectly).
The best place to check upcoming IPO stock is at Renaissance Capital website, where you can see the upcoming IPO for the next week.
#1 strategy to pick IPO stock is AGAIN only pick the ones you know. For example, if you are in medical industry, you probably know which new company is coming up with a strong potential medicine and that would be the one you will pick. Or, if there is a local company that's going IPO and you have relative/friends there, you probably know more about what's going on there than most other people in the country (assuming you will not get insider information). BTW, that's why Silicon Valley is such as good place to live.
#2 strategy is copy-cat. In another word, if one existing company is hot, company with similar offer will probably be hot too. For example, Google stock is hot, so their Chinese copy, Baidu stock, is also hot when they went IPO. The same goes to the Chinese copy of YouTube, Symantec, and many many other.
By simply using above two strategy, you will be successful IF you
- do your homework : check the IPO stock website on weekly basis, and study the background of each upcoming IPO company
- do not get emotional : only pick the IPO stocks that meet above two criteria, and NO MORE, no better what other people says. Again, your goal is not to catach every hot IPO stock, but to catch one once awhile
- know when to exit : IPO stock is pretty violent for the first couple of days or weeks. Ready to exist when you hit 20% gain.
The gam of IPO is more about emotional control than anything else. It takes practice to do it well.
