Just like any thing you want to sell, a thing can fetch a much higher price when demand is much more than supply. In a run-up to a bull market, everything starts of with fundamentals or at a fair price. What the wise man does in the beginning, fools do in the end. Speculation is always wildest at the end and prices are always highest at the end but the problem is no one knows when will the whistle be blown.
What actually happens in the cases of IPOs is "wealth transfer", often on a massive scale. By shamelessly merchandising these birdless bush or worthless IPOs (see my other post Fundamental evaluation of an investment), promoters have in recent years moved billions of dollars from the pockets of the public to their own purses (and to their friends and associates). The fact is that a bubble market has created many bubble companies, entities designed more with an eye of making money OFF investors rather than FOR them. Too often, an IPO, not profits, is the primary goal of a company's promoter. At bottom, the "business model" for these companies has been the old-fashioned chain letter, for which many fee-hungry investment bankers acted as eager postmen.
But a pin lies in wait for every bubble. And when the two eventually meet, a new wave of investors learns some very old lessons: First, many in Wall Street - a community in which quality control is not prized - will sell investors anything they will buy. Second, speculation is most dangerous when it looks easiest.
Smart investors will not attempt to pick the few winners that will emerge from an ocean of unproven enterprises. No one can claim to be smart enough to do that - the only factor is luck. Instead, we try to apply the theory of "if a bird in hand is worth two birds in the bush" to opportunities in which we have reasonable confidence as to how many birds are in the bush and when they will emerge (a formula where a cheeky guy would perhaps say "a gal in a convertible is worth 5 in the phonebook").
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