Read what investing in IPO pros and cons exist if you invest in companies at the stage of entering the stock exchange and how to assess the possible prospects for business on the stock market in the article below.
Is It Worth Investing at the IPO Stage?
Someone works in the civil service, someone is a freelancer, someone is a top manager, someone is the owner of a small business or an employee. Almost always, the key issue in investing is the issue of involvement and time, that is, how much you need to spend your personal time in order to receive income from INVESTMENT, but not live behind a monitor or do it to the detriment of your main activity.
To participate in an IPO, you do not need to make a lot of daily transactions on the stock exchange, rush to choose the right entry point, and constantly follow all the news on the markets and events. Usually, there are 2-5 worthy trades per week, which will take you just 5 minutes to enter. Yes, it really is. You open the app on your phone, select the name of the companies, enter the amount of the application and you’re done.
IPO (Initial Public Offering) means the initial public offering of shares, after which the company turns from a private company into a public one, and anyone who has the right to participate in the auction can buy its assets. Longtime investors remember the hype when Google, Microsoft, Facebook, and Apple entered the market, selling their shares like hotcakes, bringing their owners a lot of profit. Not to mention the owners of companies that have earned billions.
Participation in initial placements – Initial Public Offering – was previously limited and available only to qualified investors. Now it is possible for non-quals to buy domestic shares relatively easily; foreign IPOs can also take part, but not directly. The peculiarity of investing at the initial stage is that these are investments in a company that is just entering the stock market and it is likely that this is one of the lowest prices per share, and then they will only grow.
IPO Alternatives: Investing in Companies at the IPO Stage – Advantages and Disadvantages
So, let’s see what opportunities such an investment promises us, and what pitfalls should be avoided in this matter. Let’s start with the positive side of investing in stocks in an IPO.
- Receiving dividends.
- Earning income by changing the value of the share price.
- Capital diversification.
- Long-term investment.
- Acquisition of shares.
Now we will look at some of the downsides of investing:
- Big risks.
- Temporary stay in a loss zone.
- The risks that an investor takes on may seem very high at first glance.
However, the price paid for the high yield of an IPO is the risk that the investor takes on. After the company goes public, there is no guarantee that the papers will take off. There are also bad examples. An unpleasant situation occurred with the fitness startup Peloton, which sells equipment with video workouts on a subscription basis. When the company went public last year, its shares fell because management misjudged its value. As a result, on the very first trading day, the paper lost more than 10% and traded below the placement level until the end of the year.