Average investors: Here's some advice on Twitter's much-anticipated IPO

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As Twitter promotes its IPO in cities across the nation before its first day of trading, USA TODAY markets reporter Matt Krantz schools the average investor on whether to jump in now or wait a few months.


1. How does the casual investor go about getting in on a hot IPO, aka initial public offering, like Twitter?

You need to have an existing relationship with a broker. Wealthy clients and customers of the large investment banks have the best chance to get shares of highly coveted IPO shares.

But if you're not rich and famous, or have a long-standing account with a full-service brokerage involved in the IPO, you will need to contact your discount broker to see whether it will offer Twitter shares to its customers.

Recently, about 20% of shares sold in an IPO will be held back for regular folks. This limited number of shares are usually doled out by well-known discount brokers, including Charles Schwab, TD Ameritrade and Fidelity. Just be careful. Remember that most of the shares of popular IPOs are claimed by the big investment banks who give them to their top clients and customers.

My rule of thumb is that if you are a regular person, if there are shares available for regular folks, then that means that the smart ones and rich ones don't want in on them and you should probably avoid them, too.

Remember, too, you don't have to buy shares in the Twitter IPO to be a Twitter investor. You can wait for the shares to start trading once the early investors sell. If demand is weak for the shares, you might even be able to buy shares below their IPO price.

2. Do you think Twitter's IPO will be a success?

Measuring the success of an IPO depends on what side of the table you're sitting on. The higher the price set on the IPO shares, the more money the seller, the company and early investors make. But the higher the price, the less that's left on the table for new investors.

If demand is strong for Twitter shares, and Twitter raises the more than $1 billion it's seeking, it will be a success for the company. But for investors, success will be measured based on how the shares perform after they start trading. If the company sells the shares at a steep premium, and investors pay up only for the shares to fall, that's not most investors' idea of success.

And that's why studies have shown that it is often best to let a new stock trade for three to six months and then buy the stock. Everyone is guessing and so it is dangerous to buy when it first goes public. It can be an overhype deal.

3. The reason that I ask is that some skeptics are saying many people are unsure how Twitter fits in their daily lives. How is Twitter dealing with these criticisms?

I really don't think that will have anything to do with the Twitter IPO. With Facebook, you heard endless stories about the "Facebook fatigue." But that criticism doesn't matter since the company is printing money and the stock is even doubling this year. Investors often confused a company and its stock. They're two very different things. Over the long term, if a company is doing well then the stock and the performance of the company tend to parallel with each other. But in the short term, a stock and the company's fortunes can head in different directions.

People don't know what the future will be. The fact that some people don't use Twitter might be a positive for investing in the stock, because people who don't might start using it and since people who quit it, might go back to it. People shouldn't focus on the criticism; instead they should focus on the price that they are paying for the shares.

4. Would you advise average people to jump in now or wait a few months after Twitter goes public to get in on it?

It's tricky because investors don't know what the exact price is going to be as to what the stock will sell at. The key is to focus on the price of the stock. Right now, we have an estimated price range of $17 to $20 a share. But that's just an estimate and it could rise or fall based on how much demand there is for the stock.

If the IPO price increases the price, then it becomes even more speculative and risky. If the IPO price goes lower, which is highly unlikely, then maybe it is something that investors should look at. If you don't have any experience with financial matters, then it is best to leave it alone. If you do have experience, watch the price until there is an opportunity to jump in.

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