June 4th, 2007

Life Cycle Investing: IBD 100 and IPO’s

There are about 7000 publicly traded stocks on the major markets (NYSE, NASDAQ and Amex) and, according to the Forbes table I included in that article (see my post of May 30, 2007), there were 2200 IPO’s over the past 10 years, or about 28% of all those being traded today. I’ve often wondered how the IBD 100 stocks, as represented by the index, always seems to out-performe the S&P500 by such a large margin. I’ve discovered that the answer is that the list IBD’s top stocks (what they call the “market leaders”) is so heavily weighted to relatively newly issued stocks.

The following table lists the current stocks in the IBD 100 list according to the IPO date. What is interesting is that 40% of them became available for public ownership only since the beginning of 2000; the IPO’s of more than 50% of them was 10 years ago.


But that’s not to say that IBD has included these stocks since their IPO’s. Actually, many are only recent additions to the list and many have had spectacular moves since their IPO’s prior to their addition to the list.

IBD’s heavy focus on strong IPO’s may have been obvious based on the writings of William O’Neill and the principals of CANSLIM. However, the strategy doesn’t actually register until you look at the actually statistics as outlined above. So, it’s back at the same challenge. To make better than average returns, you need to identify early those IPO’s that will have great moves, avoid those that will be duds and know how to avoid those that don’t move.

(more to follow)

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