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Investors, including a few lucky E-Trade account holders, who got shares at the offering price of $30 a share whooped with joy. Meanwhile, other observers gasped in horror. Stock message boards on discussion sites like Raging Bull and Silicon Investor were filled with posts expressing astonishment that anyone would pay this price for a hardware company with $17 million in sales last year.

And, indeed, there is good reason to think that buying into a super-hot IPO, however promising the company, is not a great idea. Studies have shown that explosive IPOs often under perform the market. Such stocks tends to rise sky-high, and then drop. Often it keeps falling for a very long time. Of 15 IPOs that doubled on their first day in 1995 or 1996, nine are now below their first-day closing prices, according to data compiled by Professor Jay Ritter of the University of Florida. The Globe.com, the previous record holder for price run-up in the first day of trading, went public at $9, opened at $87 and closed at $63.50 (all pre-stock-split prices); it now languishes just above $10 a share.

By Friday afternoon, anybody who had bought VA Linux at $320 had already lost $102 a share, as the new issue closed the week at $218.

But there's something missing from this picture. Everybody knows that IPOs that run up to astounding heights lose a big part of their value within days. So who are the investors naive enough to buy into them?

Conventional wisdom holds that these stocks are bought by small investors who are willing to buy into a good story at any price. According to this theory, the buyers for VA Linux are true believers who think that Linux-based computers will eventually displace the Microsoft monopoly.

In this case, the conventional wisdom seems wrong. In scouring hundreds of messages on investor bulletin boards, I did not find one person who admitted to buying VA Linux at $320. This is significant, because investors who like a stock tend to be vocal about it. Many will happily go on Internet message boards to defend their purchases -– in part because the buzz helps keep up the price of their holdings. If individual investors are not out in force defending the companies prospects, you have to figure they're not holding the stock.

Next page | Who bought at $320?