While this early momentum can last for several days or longer, it ALWAYS ends, at least temporarily. "Within three months or four months the stock price (of an IPO) will usually sag," said Kathy Smith, an analyst at the Greenwich, Connecticut-based Renaissance Capital, an IPO research firm that manages the IPO Fund. "A wait-and-see approach can really pay off."

For example, Amazon.com's stock gained a bunch on its first day of trading but it was actually trading at less than its offering price a week later. Amazon's a bit of an unusual case, but most new issues will show some significant price weakness within the first six months of trading.

The research report Another benefit of waiting a bit before investing in a new issue is the analyst research report, which comes out about 25 days after a stock starts trading. Because the analysts who first start covering a new issue work at the banks that helped bring the company public, these "rah-rah" reports nearly always include a "buy" or "strong buy" rating and rarely make much of an impact on a stock price. However, they do provide some food for thought as well as revenue and earnings estimates which can help an investor decide on an appropriate valuation.

If you're determined to get in on an offering on the first day, always use limit orders, which allow you to set the maximum amount you're willing to spend. Limit orders may not always get filled, but you may get saddled with a wildly overvalued stock if you use a regular market order.

Struggling IPO market Just like all markets, the world of IPOs goes through cycles. When it's in a downturn, as it was in the spring of 1996, deals that are lucky enough to get out are often priced at bargain-basement prices. That's when the smart investor is looking hardest to jump in.

Take, for instance, the March 1996 debut of Internet auctioneer Onsale, which could barely find any bidders at a lower-than-expected $6 offering price; the stock was below $5 within weeks. Later in the year, when the market turned around for Internet stocks, Onsale's price surged more than 500%.

A first-class jockey Another strategy analysts recommend is buying on the strength of the underwriter. Year in and year out, deals from Goldman Sachs, Merrill Lynch, and Morgan Stanley Dean Witter perform near the top of the list.

Along the same lines, say analysts, stay away from the small underwriters or the tiny deals. Renaissance Capital's Smith defines a small underwriter as a bank that does not do its own research and only sells to individual investors. "Institutions may be deal hogs, but they demand research and provide credibility," she says.

A small deal is an IPO which places a company's market value (shares outstanding times offering price) at less than $50 million, Smith adds.

Funds and (gasp!) shorting If you don't have the time to do adequate research for your own stock picking, you may want to consider putting money in a growth-oriented mutual fund that invests heavily in new issues. Renaissance Capital has started such a fund, and you can contact Morningstar for others out there that fit the bill.

Finally, an investor may want to consider shorting a new issue, which is when an investor sells borrowed stock in hopes of buying it back at a lower price and pocketing the difference.

Shorting a hot IPO is a dangerous strategy that Smith says requires a "stomach of steel," but if timed right (wait until all the initial momentum has faded), the opportunities are large. In order to short a stock, you'll have to find shares to borrow, which isn't easy in a new issue, and you'll need a margin account with your broker.