Playing Hyped Up Tech IPOs

684% Gains?

By
Monday, July 7th, 2014

Great news, everybody!

There are still plenty of stupid people left in the market.

Now, I know that statement might sound a bit coarse at first, but the fact is it would be incredibly difficult to make money trading securities if it weren't true.

But before we get into why that's the case, I'd like to briefly explain what prompted this rant and why I'm being so brash about it.

On June 25th, Chinese e-commerce company Alibaba Group Inc. made an amendment to its IPO filing, announcing it would list on the New York Stock Exchange (NYSE) under the ticker symbol “BABA.”

No official announcement was made regarding the date of the IPO, but most analysts weren't expecting Alibaba to officially go public until August 8th.

Well, that didn't stop the impatient dunces of Wall Street. Following the announcement, a flood of money began flowing into junior oil and gas exploration company Santa Fe Petroleum, Inc. (OTC: SFPI).

Why? Because Santa Fe Petroleum used to trade under the ticker symbol BABA.


Oops

Oops!

Despite the fact that Santa Fe now trades under a completely different ticker symbol and on OTC markets (not the NYSE), people still bought the stock in droves, thinking they were purchasing shares of Alibaba.

This is stupidity and laziness at its finest.

Nothing New

What's most shocking here is that these investors seem to be buying stocks without any consideration for price whatsoever. SFPI trades at $0.0091 a share, which should have been a clear indicator that they weren't in the right place.

But no, some people just wanted to own Alibaba because of the headlines. Screw research, screw valuation, and screw looking at the chart; I'm just gonna buy it.

This is the mentality that creates bubbles. It's the mentality that makes them pop. And it's the mentality that allows others to profit off those mistakes.

What we're talking about here is hype, and there is clearly a ton of it in tech right now. It's nothing new, and it will exist so long as companies trade on public markets.

If you've made it this far into the article, it means you're someone who's on the right side of hype. I know this because you've cared enough to read past the headline and to actually take into consideration what others have to say. You're the kind of investor that doesn't want to take a position unless you have all the information first.

And this is why I write investment commentary for a living. I know that so long as you continue staying informed, you'll be able to come out on the winning side of the market.

In cruder words, I want our readers to profit from stupidity, not be part of it.

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Hype and Profit

Back in October 2013, a very similar situation to occurred with Twitter's IPO.

The company was assigned to the NYSE under the ticker symbol TWTR. Immediately following that announcement, investors began picking up shares of Tweeter Home Entertainment Group Inc. (TWTRQ) — a bankrupt company still trading shares.

twtrq

Valuation shot up 684% in a matter of minutes.

I remember joking with a colleague at the time that we should start playing big tech IPOs by preemptively buying shares of non-related stocks with similar ticker symbols.

Well, we probably should have taken that a bit more seriously. Santa Fe Petroleum climbed well over 400% on the BABA ticker assignment. Next time you see a high-profile public offering, it could be worth your time to check for a similar ticker somewhere on the market.

Of course, there are far more consistent ways of profiting off this kind of blind hype. Headlines send stocks into overpriced or underpriced territory on a daily basis. The key, of course, is knowing where to look.

One of the most reliable methods of predicting these sudden spikes in volume and hype is playing biotechnology stocks close to pipeline catalysts such as public data releases and FDA decisions. Mapping out a calendar is the first step to making short-term plays in that space.

Turning progress to profits,

  JS Sig

Jason Stutman

follow basic @JasonStutman on Twitter

Energy and Capital's tech expert, Jason Stutman has worked as an educator in mathematics, technology, and science... Before joining the Energy and Capital team, Jason served on multiple technology development committees, writing and earning grants in educational and behavioral technologies. Jason offers readers keen insights on prominent tech trends while exposing otherwise unnoticed opportunities.


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