Twitter IPO is Investing at its Worst

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The main topic on most every investor's mind is, of course, the Twitter IPO, which started traded Thursday. However, MoneyShow's Howard R. Gold thinks rushing into an investment right away, might turn out to be a mistake you can't afford to make.

Wall Street is all a-twitter over the initial public offering of Twitter (TWTR), the microblogging site which started trading Thursday.

The shares opened at an astonishing $45.10 a share Thursday. The IPO was priced way above initial indications at $26 a share, raising $1.8 billion for the seven-year-old company. The offering was massively oversubscribed, with buying interest at maybe ten times the number of shares.

And amid the tsunami of media coverage—much of it discerning and critical—some individual investors are trying to get a piece of the dream.

If you're one of them, I have one word of advice: don't.

Not that Twitter is a bad company; it has a lot of potential, though it's far from realizing it.

Nor do I think this IPO will rip-off investors the way last year's Facebook (FB) fiasco did; Twitter, the underwriters, and the New York Stock Exchange have made a big effort to prevent that.

Read Howard's commentary on four reasons the Facebook IPO fizzled on MoneyShow.com.

And unlike Facebook, whose IPO let big shareholders cash out big time, Twitter has dedicated the offering's proceeds to "general corporate purposes, including working capital, operating expenses and capital expenditures…[and possibly] to acquire businesses, products, services or technologies," according to its "S1 offering statement".

In short, the Twitter IPO is doing what IPOs are supposed to do: raise money to grow the company and establish a public market for its shares. And it comes after an earlier wave of social-networking stocks have racked up huge gains.

But it's not your job to help Twitter raise capital or to help institutions make quick profits on their Twitter shares. It's your job as an investor to grow your wealth over time to meet your long-term financial goals. And trendy IPOs like Twitter are exactly the wrong way to do that.

In fact, the buzz over the Twitter IPO reflects investors' very worst instincts—putting too many eggs in one basket, following the herd, and getting caught up in the euphoria of the moment.

First of all, buying any individual stock is problematic, unless you're investing a small part of a widely diversified portfolio. And I have a sneaking suspicion that's not the case with people clamoring to buy Twitter.

We've all seen what market risk can do to our portfolios; Twitter adds risk on steroids, as the 32 pages of risk factors in its prospectus spell out. (How many prospective Twitter investors have actually read that document? Very few, I'd guess.)

And buying an individual stock at an IPO, or immediately afterward, is particularly dicey. Twitter just completed a roadshow in which its executives and underwriters pitched the offering to big mutual funds, pension funds, etc. These are closed-door meetings for the big-money crowd, no media allowed. You're not invited, either.

NEXT: Behind closed doors at the roadshows

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