We have Vonage. Vonage is about to offer its IPO, and we decided to dip into our home equity line and buy 100 shares, expected to go for between $16-$18 a share.
I was nervous about taking out a loan to buy stocks, but I figured Vonage would do well and we would make money in the long run.
We found out yesterday the IPO opening price is $17. I take a deep breath, write the check and give it to Ivylad to arrange things with the brokerage house.
Well, our offer to buy shares has been turned down. Apparently they had such a good response to their IPO they “over-allocated” and unless you are buying a minimun of a thousand shares, they won’t look at you.
I guess we’ll just keep investing in our IRA and 401k for now.
A small company I worked for was bought by a large company in 1999 and started vesting a large amount of dirt cheap options. For a few months there, I was a millionaire on paper, but not vested in enough to do anything with. By the time I was, the stock market had crashed.
In the end, it didn’t bother me that much, it wasn’t money I had invested and when I left last year I cashed out and had a nice little chunk of change. Not enough to retire on, but enough to add to my savings and feel good about.
Still, it would have been nice to retire before I was forty.
If an average investor can get his paws on an IPO it would mean that there isn’t much demand for said offering. The big shots can get allocations of hot IPOs which they then usually sell right away - at a sizable profit. There has been less of this in recent years (since the tech bubble burst). It’s as close to a free lunch as there is - and it is a rich people only play. You have to have money to make money.
By the way, I wouldn’t think borrowing against your house to buy stocks is normally a great idea. Your risking your house after all.
A lot of IPOs are over-hyped anyway and not truly worth the original offering price. Watch the stock for awhile and if it looks like it’ll be good for the long run, buy some. I agree, though, that you shouldn’t take out a loan to do so.
Vonage stock dropped to $16.30 after the IPO price of $17, so that’s not a good sign. Also, it’s a company with a lot of competitors, including the phone companies and the cable companies. So I think you may be better off not having invested in the stock. (On the other hand, you can get those hundred shares for less now.)
Why would you think that you have such tremendous knowledge about the workings of Vonage and the stock market that you would be able to make money off that IPO?
Do you think that the investment banks and brokerage houses are just going to allow any investor to walk into and purchase shares at the initial offering (or any subsequent offering so juicy that you can get rich off it)? By the time your shares are purchased, any instant profits are gone, and now you’re just relying on the “greater fool” theory.
On top of that, why would you think that you have such an edge that you can overcome the 6% that you need to pay back THE HOMEEQUITY LOAN WITH? To get a return of 10% on your investment, you need that stock to go up 16%!!! (roughly)
And you probably paid a fee to get the home equity loan, and you’re paying a fee to buy the IPO (sometimes higher than normal) and you’re paying a fixed fee when you sell the stock. And you’re paying taxes on your gains.
You’re probably out $100 on transaction costs, on a $1600 loan. That’s another 6% you have to overcome right there.
You made TWO HUGE mistakes (borrowing against your equity to buy stocks, and trying to get in on an IPO) and a few more lesser ones. I don’t mean to sound too harsh, here, but you gotta read a book on personal investing.
The stock market isn’t just a game, and it’s not a place to “get rich”.
Yeah, that was in the prospectus, in the risks section. It was one of the things that was causing me to drag my feet. I believe VoIP will be very profitable, and I had pretty much made my mind up to buy the same amount of shares as you. Now I’m bummed.
I think responding to your investment strategy, not what actually transpired. And he makes some good points.
You are basically levering your house to buy into a high-risk venture. Not a good idea for pretty much every reason he pointed out.
And not to sound rude but what makes you think you know if Vonage is a good investment other than you think their product is neat? By what method of valuation and analysus did you determine whether it was a good buy?
Investment is not playing the lottery. It’s a lot of work and strategizing and patience.
Look, I’m not saying we were making the right decision. It seems we were saved from our stupidity. As I said, we’ve never been offered the opportunity to invest in an IPO before, and we were probably too eager.
Lesson learned: Research research research before you invest. Then, research some more.
While I pretty much agree with what has been said concerning research and such, I would just point out that there is nothing inherently wrong with moving investments from a medium to low risk investment to a higher risk investment. It just depends on the risk profile of the investor as well as the expected returns.
…however they aren’t moving investments. They are leveraging the equity in their home with debt for a high risk investment. In other words, as soon as they made their investment, they have already incurred a 6% (or however much) loss.
Another way of thinking about it is like using your credit card to play roulette in Vegas. Yeah you might win, but most likely you will lose and you’ll still owe money.
Well, the prospectus outlined some pretty hefty risks. One of the most encouraging things I saw looking over it was their growth over the past few years. Established phone companies are now pushing to compete with them instead of the other way around, which is good. And of course, Vonage isn’t the only VoIP company out there.
I would need a stone cold lock of an investment in order to leverage my house. I mean, I’d need to be able to borrow at 6% and buy a US Treasury Bond at 7%.
But, if you’re a crazy financial risk taker, and for some reason you think the market is about to go up. . .you could move the money from the equity in your house to the market. It’s not something I’d recommend to anyone on earth (particularly someone trying to wisely save for retirement), but people over-leverage themselves all the time.
You already own a house and have retirement savings; you’re rich compared to the vast majority of the people in the U.S., not to mention the world. Relax and stop worrying about getting more money, especially if you’re putting your house on the line!
I think I’ll relax more when I don’t have bills. I am the miser in the family, and I hate bills. I hate them with a passion. If I’m not paying more than minimum on a bill, I consider myself delinquent.
I think we heard IPO and thought “Ah! Google!” Looking back, I think it was a stupid risk and I’m glad we missed out.
I guess we’ll continue to get rich the old-fashioned way…by earning it, slowly and surely.
We got in preIPO with my employer because I had options that spent several years being worthless because the company wasn’t public. So the minute the company went public, we had made a bunch.
Got lucky though. I have a lot of friends who were going to get rich in the late 90s off options they had when the companies they worked for went public. And most never went public.
