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10/24/13 | OOO

So You Want to Buy Stock in Twitter?

The right question isn’t how to buy stock in Twitter, argues this investing expert, it’s should you.

By Laurie Itkin (Founder, The Options Lady)

I get asked the following question nearly every day: “How Can I Buy Twitter Stock?” Well, unless you work for Twitter or have a special affiliation with the investment banks that are underwriting the offering, you’ll likely have to wait like the rest of us — until Twitter is available for sale on the New York Stock Exchange under the symbol “TWTR,” which will likely be in mid-November.

The question that is more important than how you can buy Twitter stock is if you should buy Twitter stock. While I cannot give readers specific investment advice unless they are one of my money management clients, I can recommend that you step aside from the excitement and think clearly about the advantages and disadvantages.

Sure, the Twitter IPO is the hottest thing since the Facebook (FB) IPO. It is natural to want a piece of the action, especially if you are loyal Twitter user.  Heck, even if you hate Twitter you know it is widely popular. But back to the Facebook IPO. Were those who purchased FB stock on the first or second day of trading able to turn around and sell their shares and with the proceeds quit their jobs, fly to Paris, and dine on Chateaubriand and Cristal?  Nah…I don’t think so.

Well, what the heck happened?  This chart tells you a lot:

Source:  Statista

As you may recall, FB plunged immediately after its IPO and kept plunging…a lot. Investors had to hold their FB stock for more than a year before it recovered in price.

On the flip side, many IPOs are very successful and investors can make nice gains fairly quickly.

You have to ask yourself, “Am I trying to get a piece of the IPO in order to make a quick gain or do I think the company is a good long term investment? If the former, then you are looking at this from the perspective of a gambler and not an investor. If the latter, then consider doing research to determine what price you would be willing to pay for the stock based on the company’s valuation and other factors. There are a lot of analyses and opinions available online if you search. You might want to consider Twitter’s profitability, revenue expectations, domestic and international growth prospects and most importantly, regulatory and competitive threats.

I almost never buy stock on its first or second day of trading. I like to give it time to see what news comes out, what investment analysts are writing about it, and how the stock price performs. Hey, it’s always fun to buy a stock and tell your friends that you doubled your money in just a few weeks or months, but think how fun it will feel if the opposite happens. Investors who were patient and waited to purchase FB shares a few months after its IPO made much higher gains than those who bought it when it first became available.

Laurie-ItkinAbout the guest blogger: Laurie Itkin is founder of The Options Lady and an investment advisor with Coastwise Capital Group.  She is author of the forthcoming book, Every Woman Should Know Her Options: Invest Your Way to Financial Empowerment. Sign up for her free monthly newsletter at www.theoptionslady.com.  

Photo credit: Spencer E. Holtaway via Flickr.

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