Crash Canary Update – For Wednesday

The subject of IPO’s was brought up the other day in my private Portfolio Boss Club.

We’re constantly on the lookout for new, exciting, and potentially disruptive technologies.

Mouth watering game changers.

The kind that bring in more cash than you or their 30 year old billionaire CEO knows what to do with…

Oh what a horrible problem to have right? haha

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Short IPO's and Make Gobs of Cash?

A member brought up the 3 to 6-month lock-up period where insiders are forbidden from selling their shares.

This isn’t an SEC rule. It’s so the stock looks pretty for the first few months of its IPO.

Gotta set the pace.

So if you’re a company exec, founder, VC, or a shmuck lucky enough to get into a company before it goes public, you’re not selling for a few months minimum.

Anyway, a member was talking about how IPO’s declined after about 6 months because of these insiders.

Sounds logical I guess.

He mentioned a few recent IPO’s that fell after their IPO.

I in turn mentioned Google went straight up for 3 years after its debut.

I asked for a link to the study that showed that IPO’s do indeed drop after their lock-out period.

There wasn’t one. At least a published one.

No surprise.

Let me help you if you don’t see the flaw in this otherwise smart and cool dude’s thinking.

He wasn’t thinking scientifically about the markets.

That doesn’t make him a bad guy.

It makes him like the majority of traders though.

And the majority of traders don’t make money because they don’t trade on thoroughly researched evidence.

Here’s what you do to stop losing and make money in the markets:

Step 1: Come up with a hypothesis such as “most IPO’s have a lock-out period of 3-6 months. I believe IPO’s go down after that time. Maybe I can make some fun coupon shorting them.”

Step 2: Gather data. Lots of it. Preferably a database of every stock that ever IPO’d, including de-listed stocks.

Step 3: Run several repeatable experiments to check the hypothesis. Be exact. Use a computer.

Step 4: Analyze the data and come to a conclusion. If the experiments support my hypothesis, now I have a theory of how IPO’s behave.

Most skip steps 2, 3, and 4 because they involve work.

“Opportunity is missed by most people because it is dressed in overalls and looks like work.”
– Thomas Edison

I’ve never done this research. Maybe it shows the opposite. Most Wall Street adages are 180 degrees backwards.

Maybe the evil insiders sell short their stock as a hedge from secret offshore accounts. Devious? You bet.

Cue Dr. Evil laugh “Muuuaaahhhhaaaaaaaa!”

If I did this research, I would create a roadmap. Average all the 3-month lock-up IPOs performances on a daily basis for the first year. Not by percent gain/loss, but normalized for volatility. ATR comes to mind.

Then I would do the same for 6 month lock-ups. That would give me a great visual roadmap of where to go next. Then I would create a computerized strategy to take advantage of these swings.

For all I know, this IPO hypothesis is just another dead end street to go down.

Been down a lot of those.

There’s one street I know that isn’t a dead end…everything I teach you…because I’ve proven it.



Editor's note: October's been a wild ride. As you can see, the Crash Canary is still 50% in bonds. But November through May is the hottest period to trade historically for the last century. Which will win out? All is revealed in the Atlas Order's next update…hurry, the next trade signal is for Monday morning sharp. Find out more here >>

Crash Canary Status:
Crash Canary Status 10/28/14: Crash Canary is sick. Ebola? (50% bonds)

Highest Ranked Positions 10/28/14: TLT, XLP

Current Positions: TLT (50%), XLP (50%)


About the Crash Canary: Based on scientific research conducted back to 1926, the Crash Canary invests in US bonds and stock sectors once a month. Consider it a “lite” yet fully functional trading model derived from the global Atlas Order strategy. Both have performed exactly as advertised in the harshest environment known to any trading model: The future.