The idea of initial public offerings (IPO) is relatively new. It entered the public consciousness in the late 1990s. Since then, they typically do generate some excitement and buzz for the company. Like any other stock, these can be great and these can be awful. Any hedge fund prime broker would tell their clients that. If you are looking to invest in an IPO company, here are some tips to help guide to help guide you through the process and help you make a wise decision.
- IPOs are risky investments most of the time. The reason for that is simple. The IPO has no track record because they are so new. The risk is somewhat mediated if the person or people at the top have a track record with other companies but in general, there is a decent amount of risk. Last year, Fitbit went public with an offering of 36 million shares on June 16th. It was valued at $741 million. Since then, its stock has gone up by 50%. That’s a great success story. But,the results after the IPO are not always so great. Etsy looked great when it went public and now is considered to me one of the worst stocks in the country. Now, there is a lot of money to made from investing in IPOs but you have to be relatively ok with risk.
- IPOs are often hard to get. They can be the hardest stocks to get. That is because the IPO does not last very long. That frustrates a lot of investors who want “in” on a certain IPO. Uber is expected to go public this year and that will be an exciting stock to watch but how do you get that stock? Like most things in life, you need to find a way to loop yourself into the IPO world. You can get IPO information and what is coming up from the ASX Upcoming Listings page. They list the companies that have applied to be admitted into the ASX.
- Study up on the companies that interest you. Most hedge fund prime brokers recommend people get the prospectus and read it. It might not be the most fun read but most hedge fund prime brokers say it is critically important if you are considering investing in one. They give valuable information about the industry and the company. Read as much as you can from the company. Also, take some time to learn about the company’s management team. That will give you a lot of information about the company and their potential for success.
- If you cannot explain what the company does, do not invest in it. You need to be able to explain how the company makes money and what it does. If you cannot explain it, you should not invest in it.
- Has the executive team invested in the company? If so, how much? This may give you a sense of how much faith they have in the venture. What other arrangements have they made for their stock? All of these things can tell you the level of faith the people who know the company the best.
- Who is on the board? Like the management team, the members of the Board do tell you a lot about the strength of the company. Good management teams are typically picked by the Board. Knowing who they are can tell you a lot. Sometimes people do not consider the Board when they are deciding if they want to invest in an IPO but it really is a mistake. T
- Compare the company you are looking at to other, similar companies (same industry, same size). Compare how they are structured and look at how similar businesses are doing. This is not quite comparing apples to apples because there are always unique things about different companies. If a similar company is failing or succeeding may not mean anything. There are other variables that sometimes hard to quantify.
There is a real opportunity to make real money when you invest in an IPO but there is also a real chance that it can fail. You really need to look before you leap, say most hedge fund prime brokers.