After studying IPOs for more than three decades, portfolio manager and "The Lifecycle Advantage" co-author Eve Boboch told the 2022 Benzinga Fintwit Conference on Friday that she found an edge in trading. 

Boboch's co-author Kathy Donnelly said: "Patience is a virtue with IPOs." 

Understanding the psychology behind the lifecycle advantage can help investors win in trading IPOs, the authors said. Boboch broke down what the term means. 

The Lifecycle Advantage

Lifecycle Phases

A stock has a lifecycle with three distinct phases:

• IPO Advance Phase
• Institutional Due Diligence Phase
• Institutional Advance Phase

IPO Lifecycle Patterns

• Six lifecycle patterns: Late bloomers, pump and dumps, stair steppers, rocket ships, one-hit wonders, and disappointments.

Volume

• Liquidity matters: Preferably $20 million per day or more. 

Exceptional Companies

• Disruptive, transformative companies with big growth drivers. 

Sell Rules

• Use appropriate rules for the lifecycle phase. 

“We call that the lifecycle advantage or the lifecycle of a stock,” said Boboch.

Traders should always practice risk management when trading volatile IPOs, Boboch and Donnelly urged. The rules they adhere to are:

• Trade only one recent IPO at a time and reduce position size. 
• Never risk more than 1% of capital on a trade, and ideally less.
• Choose a sell rule in advance based on the phase.
• Set stops to limit losses.
• Set MCP stops to preserve gains and mental capital.