NEW YORK (CNN/Money) -
Is it true that Google will go public soon? If so, how can I invest?
-- Jean Hyche Jackson, Baltimore, Maryland
So Google finally did it, after months of speculation finally announcing on Thursday that it would indeed go public.
The hype has been amazing: It's the most important IPO in history! It's going to revitalize the tech market! It's going to rejuvenate the stock market! It's going to re-cast the landscape of American presidential politics! (Okay, I made up that last one, but you get the idea.)
But now individual investors are faced with two questions: How can they get in on this IPO; and, more importantly, should they?
In on the ground floor?
Traditionally, investment bankers set an offering price for IPO shares and then allocate them to brokerage firms, which in turn dole them out to their best customers. In the past, some of these shares have also been given to heads of large companies as -- choose your word: incentives, bribes, kickbacks -- for the implicit promise of future business.
The people who get shares at the offering price often make a big killing because IPOs, especially eagerly awaited ones, frequently go for much more than the offering price once trading begins.
The rub for small investors is that they rarely get shares at the offering price -- they buy at the higher market price, providing a profit to the big shots.
There's also a rub for the companies going public -- money that might have gone to the company has effectively been transferred to lucky people who got the IPO at what amounts to a below-market IPO offering price.
Approach with caution
So, maybe you don't get in on Day 0, but Day 1 isn't bad, right? Even if you didn't get in on Microsoft's IPO, for example, buying soon after still would have made you very rich very quickly.
But when an IPO is as eagerly anticipated as this one, I think the odds are high that Google shares could get bid into the stratosphere.
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 | | Company | | IPO date | | IPO price | | First Trade | | Current Price | | Change from IPO price | | Va Software (LNUX) | 12/99 | $30 | $320 | $2 | -92% | | TheGlobe (TGLO.OB) | 11/98 | $9 | $90 | 92 cents | -90% | | Foundry Networks (FDRY) | 9/99 | $25 | $114 | $16 | -34% | | Webmethods (WEBM) | 2/00 | $35 | $195 | $10 | -72% | | FreeMarkets (FMKT) | 12/99 | $48 | $252 | $8 | -84% | | MarketWatch (MKTW) | 1/99 | $17 | $100 | $12 | -31% | | Akamai Technologies (AKAM) | 10/99 | $26 | $115 | $14 | -46% | | Sycamore Networks (SCMR) | 10/99 | $38 | $270 | $4 | -89% |
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| Source: IPOfinancial.com and Yahoo! Finance |
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So even if Google's future prospects are excellent, people who buy in while investors are in a gotta-own-it-at-any-price frame of mind could end up paying a tab hard to justify on fundamentals such as future earnings power.
In short, even though I wouldn't put Google into the same category as a lot of the dot-com schlock that went public in the 1990s, we could see a mini-replay of that era's irrational exuberance.
Which is to say investors might forget a cardinal lesson of the 1990s crash -- that successful investing involves not just identifying companies with good prospects, but also buying them at a reasonable price.
Overpay and you could be in for a subpar return for a long time.
I'd be more apt to sit back and wait for Googlemania to die down before deciding whether to add Google to my portfolio. That way I'd get a better sense of whether it's been priced on the basis of logic or lunacy.
Of course, if you're confident of your ability to price IPOs or you're talking about buying only a small stake with mad-money you reserve for the high-risk segment of your portfolio, then maybe you'll want to charge right in there as soon as you can.
But if you end up overpaying, don't say you weren't warned.
Walter Updegrave is a senior editor at MONEY Magazine and is the author of "We're Not in Kansas Anymore: Strategies for Retiring Rich in a Totally Changed World." He also answers viewers' questions on CNNfn's Money & Markets at 4:40 PM on Mondays.
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