19.7 In 1980 a certain assistant professor of finance bought 12 initial public offerings of common stock. He held each of these for approximately one month and then sold them. The investment rule he followed was to submit a purchase order for every firm-commitment initial public offering of oil- and gas-exploration companies. There were 22 such offerings, and he submitted a purchase order for approximately $1,000 of stock for each one. With 10 of these, no shares were allocated to this assistant professor. With five of the 12 offerings that were purchased, fewer than the requested number of shares were allocated.

The year 1980 was very good for oil- and gas-exploration company owners. For the 22 stocks that went public, the stock was selling on average for 80 percent above the offering price within a month. Yet, this assistant professor looked at his performance record and found the $8,400 invested in 12 companies had grown to only $10,100, a return of only about 20 percent. (Commissions were negligible.) Did he have bad luck, or should he have expected to do worse than the average initial-public-offering investor? Explain.