Some companies take a substantial hit long after a successful IPO - for reasons that should have been obvious to shrewd investors.

IPOs are tantalizing and often difficult to judge because they’re bets on future growth in what may be a new and undefined market. Markets may change or another company may later dominate the sector.

Krispy Kreme Doughnuts (KKD) was an instant hit when it went public in 2000. The stock price ran up about 700% in three years and lost most of the gains in the next 18 months amid slowing sales, profit warnings and a whacky p/e ratio.

Krispy Kreme was an empire built on flour and sugar, a Southern sin that was bound to stall when the novelty wore off and many customers began to pay more attention to their diet.

Crocs (CROX) rode its colorful slip-on shoes to a successful IPO. Great. What’s the encore? The stock recently fetched $4.16 a share, down from a 52-week high of $75.21, suggesting The Next Big Thing isn’t imminent.

IPO activity is quiet in the current downbeat market. But when new issues heat up sometime in the future, the market again will be based on the “greater fool” theory. Here’s how it works: does it make sense to overpay in the aftermarket for the stock of a so-so company with little prospect of long-term success? Sure - if you can dump it on the greater fool and turn a quick profit.

Moral:  In most cases, investors should move in and out of an IPO quickly because new markets can shift dramatically.