IPOs are heating up.  Last Thursday, five companies went public in what was the biggest week for Initial Public Offerings in more than 18 months.  I think it's a good news and bad news kind of story.

When the market turmoil of the last couple of years hit, the IPO market dried up.  Companies wanted, and needed, to go public in order to raise capital.  But the capital markets weren't participating.  Investors were stampeding away from risk of all kinds, so there was no money available to fund the new companies.  Now, with confidence returning to the financial system and markets, we're seeing an increase in the level of risk investors are willing to take.  And companies trying to raise funds are benefitting.  Companies like A123 Systems.

A123 Systems makes electric car batteries.  It's pretty easy to imagine that this would be a growth industry.  Apparently, a lot of investors thought so.  Demand was so strong for the company's stock offering that underwriters added 50% more shares than originally planned and marked up the offering price by 50%.  And, after two days of trading, the stock has almost doubled from the offering price.

It's good news that investors are moving back into the IPO market.  On the macro scale, it is a good sign for our economy that funds are flowing into the different areas of the capital markets once again.  A year ago fund flow was in the midst of an Ice Age.

It is also good that brand new companies and technologies are once again able to secure the funding they need to finance and grow their business.

So, what's the bad news?  Well, it's not really bad news, just some cautionary notes. The IPO market is sexy.  Everyone is looking for the next Microsoft or Google.  And when you hear about an offering price doubling before issue, then doubling again after issue, especially after the recent recovery we've seen in the equity markets, you can be lulled into believing that the investing waters are safe again.  

Confidence in the markets is one thing.  Overconfidence is another. Overconfidence in tech stocks caused the dot-com bubble that blew up in early 2000.  And overconfidence about real estate prices in the middle of this decade is one of many contributors to the housing bubble that burst recently.

We're not all that far removed from the ice age of a year ago.  Some might say the system is still on thin ice.  It's when you stop paying attention to the dangers around you that you get hurt in the investing world.  So, while we're glad to see some confidence return to the markets, we're hopeful that the pendulum doesn't swing so far this time.