After a strong performance in 2004, it was reasonable to expect the IPO market to accelerate in 2005. And it did, until the relentless crush of bad economic and political news took its toll starting in mid-summer. For most of the second half of the year, the IPO market moved sideways until it picked back up again in December when investors began to conclude that rate hikes were largely over, the Iraq war was winnable and tax cut extensions were more likely.

Unlike the type of market in which a rising tide lifts all boats, discerning investors focused only on a handful of deals, all with strong organic or cyclical growth stories. Any IPO that lacked a demonstrably rock solid story had a hard time getting done without concessions on deal size and price. At mid-year, IPOs were up only 10% from their offer prices and were negative in aftermarket performance, but by year-end, performance improved significantly. So, successful investing in IPOs depended on getting in early and getting it right. [more]