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Were amateur investors really ripped off by the Medibank Private Ltd IPO?

The Australian Financial Review’s article yesterday began with the sentence: ‘Many Medibank investors who wanted to sell on the first day’s trading were confused and angry when they learned they will have to wait more than a week to trade.’

Firstly, handing over money for shares at a semi-unknown price in the hope of selling on the first day isn’t investing, it’s speculating.

It’s perilously close to outright gambling in fact, with the only difference being if you got it wrong you would at least own a tangible product – Medibank Private Ltd (ASX: MPL) shares – for your effort.

I do agree however that having paid for your shares, you should be able to dispose of them as you want, when you want. If you’d bought a bed, or a car, you would own it and could turn right around and sell it five minutes later if you could find a buyer.

Can you imagine going to a furniture store, handing over $10,000, being told that your living room would cost ‘somewhere between $7,500 and $10,000, we haven’t decided yet’, and then being unable to take full ownership of it for several weeks?

If other industries were like finance, that is exactly what would happen.

It’s a tough break for Medibank shareholders who, after handing over their money, have seen endless articles telling them ‘it’s not worth it’, ‘there are better alternatives’, ‘the IPO is going to fizzle’.

Can you blame them for getting anxious and wanting to sell? I certainly don’t.

Compounding the problem is the fact that many have to wait until December 1 to sell – perhaps we might even see a selling avalanche as investors get nervous and bail out of the stock.

As many readers know, The Motley Fool is very big advocate of the ‘buy and hold’ method, with the ideal holding period being ‘forever’. That’s a little ironic because a good share of the ‘Medibank’s overvalued!’ articles have come from contributors like myself both at TMF and other outlets.

So I think this is an ideal time to encourage Medibank shareholders to take a reality check.

A few weeks ago, you handed over your money to buy a company with solid long term prospects because you’d really thought about it and concluded it was a good idea…right?

If so, nothing’s changed. Hold your shares and ignore the noise.

Or maybe you applied for shares either without thinking, or in the hope of making a huge stag profit and have realised that maybe it wasn’t such a sure thing.

If so, congratulations. You’ve made the same mistake virtually every other investor has made at one point or another. It might be expensive or it might not, but learn from it!

Finally you may have done nothing, thinking that Medibank was not right for you or knowing that over 50% of IPOs trade below their issue price in their first year out.

If so; great work, sit tight. And in the meantime, check out this free report to discover Motley Fool’s head analyst Scott Phillip’s #1 pick from TMF’s scorecard of market-beaters.

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Motley Fool contributor Sean O'Neill doesn't own shares in any company mentioned.

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