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We hear a lot about hot IPOs like LinkedIn, Zipcar and Dunkin' Donuts – freshly minted stocks that make you wish you were one of the privileged brokerage customers that gets let in on the action.

We hear much less about the IPOs you're lucky you didn't get a chance to buy – which are, as it turns out, most of them.

Of 91 offerings on the major U.S. exchanges so far this year, fewer than one-third have outpaced the broader market, according to data provided by Bloomberg.

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In Canada, seven of the 10 IPOs on the TSX this year are in negative territory, with most of them inflicting double-digit losses on investors. (For this analysis, I exclude TSX Venture offerings all well as structured products.)

What's even worse, for fans of the concept of IPOs "popping" on their first day to deliver immediate juicy rewards, is that two dozen of the 91 U.S. offerings actually fell on their first day of trading. And some of those debut declines were precursors to disastrous performances.

Consider, for example, the social-networking company FriendFinder Networks Inc. , which fell 21 per cent on its first day and is now down 70 per cent from its May offering price. The company operates a number of sites, including, and is perhaps better known by its former name, Penthouse Media Group. (Insert your own penthouse-to-the-outhouse joke here.)

While it's fun to pick on the offerings that were dead on arrival, there are more disturbing trends at play for the retail investor — namely, stocks that provided a significant first-day gain, enticing investors to pile in, and then retreated completely.

There are a half-dozen issues that gained 20 per cent or more on their first day, yet are now down at least 25 per cent from their issue price. Examples: Internet content creator Demand Media Inc. , up 33 per cent its first day and now half its issue price, and Phoenix New Media Ltd. , up 34 per cent on day one but now down about 40 per cent. (Insert your own joke about the phoenix heading in the wrong direction here.)

Not all first-day poppers have been losers, but all have failed to deliver on their initial promise. Look, for instance, at the five companies that gained 50 per cent or more on their first day — Chinese Internet firm Qihoo 360 Technology Co. Ltd. , social networker LinkedIn Corp. , real-estate website Zillow Inc. , auto renter Zipcar Inc. , and the absurdly named beverage retailer Teavana Holdings Inc. . All are still positive for the year. None, however, are higher than they were when the first day's trading ended.

As for the hot Canadian IPOs … well, there haven't been any, as Longview Oil Corp. provided the biggest first-day gain at 4.5 per cent. You have to go to the Venture exchange for gains of 50 per cent, 100 per cent, 200 per cent – if stocks going from 10 cents per share to 20 cents is what turns you on.

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One factor that's helped to create the muted U.S. results is the fading fortunes of many Chinese issues, such as RenRen Inc. , which popped on its first day only to fall into the red. After making up the bulk of 2010's hot offerings, Chinese entries have fallen out of favour this year due to an unnerving number of accounting questions swirling around them.

IPO analyst Francis Gaskins, who operates the website, notes Chinese stocks are one of three popular types of issues – along with private-equity-backed companies and energy concerns – that have run into tough times in the choppy market. That, he says, helps explain the middling results of many IPOs.

In fact, given the volatility we've seen so far in 2011, he's pleased with the overall performance of the IPO market. A few recently postponed offerings notwithstanding, the pipeline of new issues has been robust all year.

"I think it's been a good year for IPOs, because the window's been wide open," Mr. Gaskins said. "People wrote off the IPO market as things looked bad for the indexes a couple weeks ago, but they bounced back pretty fast. I think there's a lot of backlog, and the IPO market will be healthy this fall."

It has not been a good year for people actually buying the issues, however, which suggests there is not a direct correlation – at least, not in recent months – between the number of companies going public and the number of IPOs that actually reward their investors. Which, if the year so far is any guide, suggests that the robust list of new offerings this fall will give investors plenty more chances to lose.

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About the Author
Business and investing reporter and columnist

A business journalist since 1994, David Milstead began writing for The Globe and Mail in 2009. During eight years at the Rocky Mountain News in Denver, Colo., he individually or jointly won nine national awards from SABEW, the Society of American Business Editors and Writers. He has also worked at the Wall Street Journal. More

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