Investing while ignorant can be risky

Like most Vonage customers, I received a letter recently inviting me to participate in the company’s then-pending IPO. Unlike many customers, I declined to participate.

Vonage Holdings Inc. hoped to show its Internet telephone customers how much it valued them by making many eligible to buy shares in the company’s public offering last week. The idea backfired: Customers who lined up to buy those first public shares got burned, as the price of the stock has fallen 26 percent.

Now many are outraged, not only by the stock’s poor performance but also by what they say were glitches in Vonage’s unusual effort to include customers in its IPO.

I’d like to claim some prophetic understanding that the stock price would drop, but alas, I’m not that smart. I thought about the risk for a few moments, coupled that with my complete lack of knowledge about Vonage’s financials, and decided that I’d be a sucker to take the offer. While other customers logged on with dreams of sudden riches because they could get in on an IPO, I used the letter from Vonage as scrap paper where I wrote down directions to a car dealership. At least I’ve researched the car, which is more than most customers probably did with the Vonage prospectus.

The six years and many thousands of dollars I spent on a Finance education finally paid off.

2 thoughts on “Investing while ignorant can be risky”

  1. Customers didn’t have to pay for their IPO shares until today. And guess what — they’re reneging. Vonage has agreed to buy back the unsold shares from the underwriters.

  2. I saw that. I suspect it’ll be awhile before a company does that again. Of course, if I’d invested, I’d be angry at the company’s management for being so clearly ignorant. In hindsight, of course, but the setup seems ridiculous now that the facts are clear.

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