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Purchasing a promising company's stock right out of the public offering gates can yield great returns for long term investors. Example: Google Inc. (NASDAQ:GOOG). The stock opened at $100.00 in 2004 and is currently trading above $500.00. But I'm not an investor who holds stocks for years. Instead, I currently find success in riding the short term trends, holding stocks for only a few weeks to a few months.

So, do Initial Public Offerings (IPOs) have a place in my short term portfolio? The answer is, generally, no.

Here's why:

First, it is crucial to understand the difference between an IPO Offering Price and the IPO Opening Price. Long story short, large brokerages and financial institutions are able to purchase the IPO of a stock at its offering price. They then turn around and sell the stock to retail investors, like you and me, for a higher price, the opening price.

Using a Yahoo Finance tool, I took a look at the biggest IPO gainers and losers from the past six months. Keep in mind, the gains and losses are based off of the IPO offering price, not the opening price.

Here is a look at the biggest gainers:

LinkedIn Corporation (NYSE:LNKD) went public on May 18, 2011 with an offering price of $45.00 and an opening price of $83.00. The stock is currently trading at $74.61, yielding a 65.80% return from its offering price and a -10.11% return from its opening price.

Qihoo 360 Technology Co. Ltd. (NYSE:QIHU) went public on March 29, 2011 with an offering price of $14.50 and an opening price of $27.00. The stock is currently trading at $22.45, yielding a 54.83% return from its offering price and a -16.85% return from its opening price.

ServiceSource International (NASDAQ:SREV) went public on March 24, 2011 with an offering price of $10.00 and an opening price of $13.65. The stock is currently trading at $15.80, yielding a 58.00% return from its offering price and a 15.75% return from its opening price.

Zillow, Inc. (NASDAQ:Z) went public on July 19, 2011 with an offering price of $20.00 and an opening price of $60.00. The stock is currently trading at $31.38, yielding a 56.90% return from its offering price and a -47.70% return from its opening price.

Carbonite, Inc. (NASDAQ:CARB) went public on August 10, 2011 with an offering price of $10.00 and an opening price of $10.75. The stock is currently trading at $15.19, yielding a 51.90% return from its offering price and a 41.30% return from its opening price.

click on images to enlarge

These five "biggest gainers" are currently an average 57.49% above their respective offering prices; a round of applause for the large brokerage firms and financial institutions. Conversely, the retail investors, i.e. clients of these firms, i.e. you and me, didn't fair so well. The average return from the above stocks' respective opening prices yields a disappointing -3.52%. Keep in mind, these are the current returns of the five biggest gainers. When we look at the opposite end of the spectrum, the biggest losers, it gets even uglier:

FriendFinder Networks, Inc. (FFN) went public on May 10, 2011 with both an offering price and opening price of $10.00. The stock is currently trading at $2.92, yielding a -70.80% return from both its offering price and opening price.

TMS International Corp. (NYSE:TMS) went public on April 13, 2011 with an offering price of $13.00 and an opening price of $12.50. The stock is currently trading at $6.71, yielding a -48.38% return from its offering price and a -46.32% return from its opening price.

Renren, Inc. (NYSE:RENN) went public on May 3, 2011 with an offering price of $14.00 and an opening price of $19.50. The stock is currently trading at $7.18, yielding a -48.71% return from its offering price and a -63.18% return from its opening price.

Sequans Communications (NYSE:SQNS) went public on April 14, 2011 with an offering price of $10.00 and an opening price of $8.00. The stock is currently trading at $5.46, yielding a -45.40% return from its offering price and a -31.75% return from its opening price.

NetQin Mobile, Inc. (NYSE:NQ) went public on May 4, 2011 with both an offering price and opening price of $11.50. The stock is currently trading at $6.78, yielding a -41.04% return from both its offering price and opening price.

The top five biggest IPO losers averaged a -50.87% return from their respective offering prices and an average -50.62% return from their opening prices. All parties lose (except the short sellers, of course).

I'm generally not the fear mongering type who enjoys pointing out the negative, but when we look at the above short term IPO returns the results aren't very encouraging, especially for retail investors. Even if we were to let our eternal optimism shine and eliminate the biggest loser results we are still stuck with an average -3.52% return from the "biggest gainers" when purchasing on the IPO date.

It becomes obvious that the short term IPO game is one that carries a great amount of risk for your average retail investor. Encouragement can be found, however, in the fact that some banks do allow retail investors to purchase an IPO stock at its offering price. This information is best summed up by Darren Chervitz in his CBS Marketwatch article:

To buy an IPO at the offering price, you'll need to have an account with a broker that has access to that deal, meaning one of the banks that is part of the selling syndicate. These will be brokers that also have corporate finance divisions, such as Merrill Lynch, Wit Capital, or Salomon Smith Barney, or discount brokers that have signed a distribution alliance with a traditional investment bank, such as E-Trade or Schwab or DLJDirect. The names of the banks on the syndicate for any given deal can be found by looking at the 'Underwriting' section in a company's SEC registration.

Keep in mind, even if you are able to get your hands on an IPO stock at its offering price, brokerages do not allow and/or punish quick selling, or "flipping". The punishment for those who "flip" or sell their shares quickly, generally within 60 days of the stock's IPO, is harsh and often involves restriction of future IPO allocations.

In conclusion, this analysis brings to light the bleak reality of the risk involved in trading IPOs short term. With patience and great technical trading skills, however, risk can be minimized. On the rare occasion that I do invest in an IPO I never purchase on the first day of public trading. Instead, as with many stocks, I look for a solid support level for an entry point. Often times, this support can be found within just a few days of trading.

Take Pandora Media, Inc. (NYSE:P) as an example. The stock recently opened at $20.00 then quickly fell to apparent support around $12.50, yielding a quick 37.50% loss for novice traders who bought at the open. The stock then rebounded back up to $20.00 within a couple weeks, a quick 60.00% return for skilled, patient traders who waited to purchase the stock at support and sold at the trend reversal.

With all things considered it becomes obvious that, when trading IPOs short term, patience, and an ability to ignore the ever-present IPO hype, is key.

Source: 11 Recent IPO Stocks