New issues

1  2  3  4  5  6  7  8  9  10  11  12  13   

12. A tale of two issues

In December 1995, computer services company CMG floated at the equivalent of 42.5p. It had a long history of profitability stretching back to the Sixties. The market for its services was expanding fast. It was also a fine time for investors to pick up new issues - 1995 was the first year of a new bull market and the stock market had leapt 20% since January.

The shares touched their historic low of 40.75p within a fortnight. Just over four years later, they hit their historic high of 1,761p. Had you bought them as a new issue, you would have made 43 times your money up to that point, and over 30 times even around the current price.

In July 1997, two and a half years later in the same bull market, telecoms company Ionica made its debut. Its bold plan was to challenge BT's monopoly of the 'local loop' - the copper wire network connecting residential homes to the national telephone system. It aimed to do this by offering an alternative wireless link.

Ionica was heavily lossmaking and needed cash to fund the rollout of its service. It looked like a risky business, and it was. Within just 15 months, the company had run into a cashflow crisis and gone bust with debts of £300m. If you had bought this new issue, you would have lost your entire investment.

These two contrasting tales illustrate a very important truth:

You will do well to remember it the next time a glossy prospectus drops tantalisingly on your doormat.

1. After Sid - a short history of the new issues market 2. Do new issues offer good value? 3. Types of new issue 4. Applying via brokers and intermediaries 5. The prospectus 6. What to look for in the prospectus (1) - directors and advisers 7. What to look for in the prospectus (2) - standard company analysis 8. What to look for in the prospectus (3) - blue-sky company analysis 9. Making your application 10. Stagging 11. A word on warrants 12. A tale of two issues 13. Conclusion

• How to Invest in E-Commerce Stocks