What Is IPO
For a layman to understand, Initial Public Offering, also known as IPO is the first sale of shares to the general public. Usually, IPOs are issued by smaller and younger companies which need capital to fund their projects or expand an existing project. However, this is also floated by larger private companies who plan to become publicly traded.
Benefits of IPOs
With IPOs, you buy shares of a company which is more often starting from scratch and is most likely to grow. The brighter side of IPO is that if the company does well, it would give you the best of long-term returns. Moreover, the IPO is the only place where an investor can get the stock at the lowest possible prices, thereby, equipping with the possibility of sharing it anytime at better prices.
Risks associated with IPOs
Investing in IPOs could be a risky affair for investors who are looking for a short-term secure investment. For any individual investor, it is normally tough to predict how these shares will do in future as there is always less or rather no performance history associated with IPOs. Moreover, most of these companies’ offerings IPOs go through a transitory phase and there lies lots of uncertainty.
What to look for before investing in IPOs?
Since it is quite tough to predict the performance of an IPO, your main source of analysis should be red herring where you can find out the potency of company’s management and their plans. Moreover, the lock-up period of any IPO is another aspect you should pay attention to. Overall, there is no single thumb-rule which we may suggest you to consider before investing in an IPO.
To sum it up, one thing which remains inevitable is that if you choose the right company based on your limited research and off course your instincts, you are bound to get profitable returns. You should not invest in an IPO just because it’s a first offering from the company. Instead, do it as a long term investment.