Proceed with caution through the IPO cycle

Are IPOs Always a Good Investment? Jim Cramer’s Advice

At Extreme Investor Network, we understand the allure of investing in initial public offerings (IPOs) – the excitement of new companies entering the market, the potential for massive profits, and the thrill of being part of something groundbreaking. However, CNBC’s Jim Cramer offers a word of caution when it comes to IPO mania.

Cramer warns investors to be wary when the market becomes flooded with new IPOs. While a few successful IPOs can create enthusiasm for the stock market, an influx of new stocks can actually drag the market down. The IPO cycle typically starts strong, generating euphoria, but then burns out as the market becomes saturated with new issues.

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Looking back at the wave of IPOs and SPAC mergers that hit the market in 2020 and 2021, Cramer notes that many of these stocks eventually lost steam. Investors were particularly eager about companies related to electric vehicles, which ended up plummeting “more than 90% from peak to trough.” The influx of new stocks overwhelmed Wall Street, leading to an imbalance between supply and demand.

Cramer emphasizes that the stock market operates on the principles of supply and demand – too much supply can drive prices lower. When investors flock to buy new IPOs, they may sell off existing holdings to raise cash, causing the “new to crowd out the old.” This imbalance can have a ripple effect, ultimately impacting the performance of other stocks in the market.

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In conclusion, while IPOs can offer lucrative opportunities, it’s important for investors to approach them with caution. At Extreme Investor Network, we provide valuable insights and guidance to help investors navigate the ever-changing market landscape. Stay informed, stay vigilant, and make smart investment decisions to achieve your financial goals.

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