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SHOULD YOU INVEST IN INITIAL PUBLIC OFFERINGS?

INVEST IN A COMPANY'S POTENTIAL GROWTH

Deciding to invest at this level requires you to have an in-depth knowledge of the market and the company you choose. You can invest in IPOs through an online broker. And if you have questions about IPOs or investing in general, you can speak with a local financial advisor. 

WHAT IS AN IPO?

IPO  stands for “initial public offering” and refers to the first time a company going public to offer its shares. It’s basically a stock market launch in which newly issued shares of a company are sold to institutional investors and retail investors (public). They can also be shares that were previously held by the founders and early investors. To invest in an IPO, you have to be among the first to buy shares in the company after it goes public. 

 

An IPO is a great opportunity for an investor to gain 10% to 60% or more on their initial investment in the few minutes it goes on the open market. It can increase significantly in value.

 

In the past, some people were lucky enough to buy shares in IPOs of companies and gain huge returns, but these days, it’s not so easy to gain such success because of scrutiny. As a result, it’s best to analyze your approach wisely.



HOW TO INVEST IN IPO's STOCK?

To invest in stocks at an IPO stage you’ll need to work with a brokerage firm or an online broker that offers IPO transactions. Not all broker handles IPOs, so you’ll need to have an account with one that does. Once you have opened an account with a broker that offers IPO transactions, the next step is to determine if you are eligible to invest. Some brokers will only allow investors to participate in an IPO if they have experience in taking investment risks and if investors have a significant amount of assets with the firm or trade with them often. And even if you find the right broker to use, having access to buy the IPO might be limited. 

 

However, if you manage to get into an IPO sale, I highly recommend that you chat with a representative of the brokerage firm if you are not familiar with the process of purchasing an IPO. 

 

The process is, however, similar to purchasing a stock on the exchange. Just pick the number of shares you want to buy and set up your order type, and once the transaction is completed successfully the shares will be added to your account like any other security.

 

Whenever the stock goes on to the open market, the price may go higher or lower. Some investors may try to sell to gain a quick profit, and others may hold on to the stocks for medium to long-term gain. 

 

Below are two popular online brokers that you can check out to invest in IPOs. 

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ADVANTAGES OF IPO INVESTING

Even though investing in IPOs is risky, here are some advantages to why you can invest.

  • Early action into the IPO means you can enter and own shares in an organization at its lowest value with high development potential.

 

  • It can be a long-term benefit. IPOs are equity investments. They can possibly get huge returns in the long haul. The earnings over time can assist you with fulfilling long-haul objectives such as retirement or purchasing a house.

 

  • A small investment may lead to increasing results. The IPO price is often the cheapest price if you invest in a small company that has the potential to grow big. Investing in an initial public offering can be an opportunity to benefit in a short timeframe quickly.

 

DISADVANTAGES OF IPO INVESTING

Since you now know the advantages, let us look at the disadvantages of why IPOs may not be a good investment.

  • Most companies do an IPO because they need to raise capital to grow their business. However, if the company fails to perform as promised, investors are likely to lose all their investment.

 

  • Just because a company is going public, that doesn’t give it value. It’s easy to get misguided in that belief. If you want to invest in IPOs, you must learn all you can about the company before it goes public.

 

  • IPOs can be overrated when caught up in excitement. You only can tell if a company will do well after the IPO. In fact, it may even be better to wait until after the IPO to buy the shares when the price of the stock stabilizes or even drops as the excitement dies down.

 

WHERE TO LOOK FOR IPOs

You can find out about upcoming IPOs from various publicly available sources.

  • MarketWatch offers an IPO Calendar that shows recently priced IPOs, upcoming IPOs, future IPOs, and withdrawn IPOs. The list includes the company’s name, the proposed symbol, the exchange it will be listed on, the price range, the number of shares, and the week when the IPO will take place.

 

 

  • You can check the brokerage firm you are with and follow up with the Jamaica Stock Exchange news page. 

 

THE BOTTOM LINE

Investing in IPOs has its benefits and risks. There are no guarantees for investing in new market securities. It is risky, but once you’ve understood the company’s fundamentals and can manage your risk properly, then investing may not be a bad thing.

 

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