We have been seeing a number of IPOs in recent times and I mean very notably companies that everyone is interested in. There was a period of IPO fever where whatever that IPO-ed seems to only go up but it seems that has died down currently. From Coinbase to DiDi Chuxing to Robinhood and coming up next will be Grab. Have you taken part in any IPO before?
Do share with me in the comments below. I have actually never participated in an IPO but if I ever get the chance to, it is interesting to see the stock start trading and where it is headed towards. Today I will be talking about whether should you get onto an IPO exercise.
IPOs can be overrated or underrated: You have to do your research first
Companies usually IPO for the main purpose of raising capital for the business where the capital can be used for expanding the business or various other uses. It is a really quick way to raise a huge amount of capital and I am sure you have seen news of how IPOs have made the founders billionaires.
You have to find out and research on the company, of course, if the company is a very 'famous' company before it even IPO, like Coinbase or Airbnb and Robinhood, you will be able to find information much easier than if it is a company that is not as heavily talked about. For those not heavily discussed, getting information on the company is not easy.
Some times brokers might recommend certain IPOs to you but beware and watch out. You should always know the basis of buying and what business model the company has.
Wait for the lock-up period
I found out about this lock-up period after I bought Palantir. It was some time after their IPO on 23rd Jan 2019 and there were articles on how the lock-up period would affect the prices as sell-offs could happen.
An initial public offering (IPO) lock-up period is a caveat outlining a period of time after a company has gone public when major shareholders are prohibited from selling their shares. During the IPO lock-up company insiders and early investors cannot sell their shares, helping to ensure an orderly IPO and not flood the market with additional shares for sale. - Investopedia
Usually after a lock-up period, people tend to anticipate a drop in prices due to the additional shares being released but of course, it doesn't apply every single time that prices will fall after the lock-up period.
You might not be eligible to buy an IPO
Getting access to buy an IPO is not easy because firstly, you will need to follow up on what companies are going to IPO and when. To participate in buying, you will need a brokerage firm that provides the service, this is because when companies issue IPOs, they will inform the brokerage firms, who will then inform the investors. Of course, participating might require some criteria/qualifications set by the brokerages for example having a certain amount of money in your brokerage account or have a certain number of transactions done.
All in all, there are many good companies that choose to IPO to raise funds for growth but the difficulty is to know which companies. As mentioned earlier, I have no experience in buying IPOs, if you do have experiences whether good or bad, do share them in the comments below. I am sure there are a lot of information, just wanted to do a video on IPO considering the IPO fever that we had awhile back and many successful companies have went on to IPO as well. Thank you for staying till the end, do remember to subscribe and give a thumbs up!
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References:
https://www.investopedia.com/investing/tips-for-investing-in-ipos/
https://investorjunkie.com/investing/invest-ipo/#historical-returns-of-ipos
https://www.thebalance.com/should-you-invest-in-an-ipo-357844
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