Have you ever wondered how billionaires continue to get RICHER, while the rest of the world is struggling?

I study billionaires for a living. To be more specific, I study how these investors generate such huge and consistent profits in the stock markets — year-in and year-out.

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But chasing new IPO profits as soon as a stock starts trading isnt a smart investing strategy. For every triple-digit winner, theres an IPO loser whose stock drops immediately once hitting the market.

For instance, NephroGenex Inc.(Nasdaq: NRX) and Amedica Corp.(Nasdaq: AMDA) are down 60% and 51% respectively since holding IPOs this year.

In fact, finding huge gains in the IPO market can be even trickier than just finding winning stocks

I often refer to the IPO market as the rich-mans market, Money Morning s Defense & Tech Specialist Michael Robinson said. And its reprehensible that the gains are reserved for the rich.

You see, unless youre a Wall Street insider or a very wealthy investor, investing in IPOs can be almost impossible

Investing in IPOs: An Ultimate Insiders Game

When a company decides to go public, one of the first things it does is hire an investment bank to underwrite the financial filings required by the U.S. Securities and Exchange Commission (SEC).

From there, the IPO filing process is demanding.

The company and underwriter determine how much money will be raised, file registration documents, identify any legal issues, determine the IPO date. and decide on the share price. The process takes months to complete, giving the company time to hype up the stock and excite potential investors.

As the IPO date approaches, the underwriter will begin selling the shares of the stock for the company.

Thats where the common or retail investor comes into play, right? Not exactly.

The investment banks that perform the underwriting are typically large firms like JPMorgan Chase & Co. (NYSE: JPM), Goldman Sachs & Co. (NYSE: GS), or Merrill Lynch, to name a few. When it comes time to sell shares of the newly public company, these firms will typically sell shares to their favorite institutional clients.

Since so many companies will want a huge investment firm performing their underwriting, the banks can be choosy about which companies to underwrite. Theyll pick the companies they think will have the most successful IPOs. In turn, they reward their favorite clients with shares of the hot upcoming IPO theyve just underwritten.

Additionally, firms will want to sell large chunks of their shares to very wealthy investors rather than selling smaller amounts of shares to thousands of retail investors. They want investors who can buy in bulk.

And the little guy is left watching

As I often tell people, because Wall Street tends to reserve the hottest issues for its best customers folks I often describe as the ultimate insiders of the U.S. financial markets IPO deals can be tough for retail investors to get into, Robinson said. And even if you do manage to get a few shares, there are still difficult decisions to make such as how long you should hold on, or under what circumstances you should sell.

In an attempt to capture some of those huge IPO profits, retail investors will often wait until a company goes public to buy shares But that can an extremely risky strategy. Heres why