Question
The Intelligent Investor presents several innovative ideas about market fluctuations and investor behavior. One of the key ideas is the warning against purchasing Initial Public Offerings (IPOs), especially during bull markets. The book explains that IPOs often have a higher built-in commission, leading to a harder sell. Additionally, new issues are usually sold near the peak of a bull market, which can lead to a frenzy for subsequent IPOs. This often results in the prices of these new stocks crashing to new lows. Therefore, the book advises investors to avoid this kind of costly speculation. Another innovative idea is the emphasis on reducing risk and protecting capital from loss, rather than trying to beat the market.
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Graham warns investors to avoid purchasing Initial Public Offerings (IPOs), particularly in bull markets — for two reasons. First, IPOs offer a higher built-in commission, leading to a harder sell. Second, new issues are nearly always sold near the peak of a bull market. The initial IPOs in a rising market lead to profits fuelling a frenzy for subsequent IPOs. A clear sign of the end of a bull market is when IPOs of small and nondescript companies have stock values higher than medium-sized enterprises with a long history. Since the prices of these new stocks usually crash to new lows, Graham warns investors to stay away from this kind of costly speculation.
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