IPO stands for initial public offering, and IPOs are basically when private companies sell their stocks to the public for the first time. Back in the 1990s, IPOs were immensely popular, with many seasoned and first-time investors targeting them and some people making a lot of money from them too, as the chance of good return on investment (ROI) was high for companies that were just starting out.
In many cases, companies experienced massive gains in the early days and weeks of trading publicly, allowing investors to make a lot of cash in a short amount of time before bailing out before the inevitable drops, leaving longer-term investors short-changed in many cases.
The tech bubble contributed greatly to the popularity and success of IPOs around the turn of the millennium, but when the bubble burst, they started to become less popular. In recent times, however, IPOs have started to see something of a resurgence, and there is most certainly money to be made in these stocks, especially over the course of the long-term perspective.
If you’re going to take an active interest in IPOs and develop your own IPO strategies, you can’t approach them with the same mindset as those 90s investors. Nowadays, it’s less likely for people to make quick, easy money on IPOs. Instead, you need to be willing to play the long game and put in the time and effort to identify the best possibilities. Here are some useful tips for those starting out.
In order to get involved with an IPO, you need to know which companies are about to go public and when they plan to do so. Otherwise, you might miss out on the IPO altogether. So the first thing to learn about IPO investing is that it requires a lot of research and careful time management; you need to be up to date at all times with the latest business news of the companies that could interest you.
A good way to find out about upcoming IPO opportunities is to search S-1 forms that have been filed with the SEC (Securities and Exchange Commission). You’ll also need to have registered with some sort of brokerage firm so that you’re ready to make an investment once the IPO goes live. In some cases, brokerages might even limit your account until you’ve made a certain amount of transactions or deposited a certain amount of money.
Our next tip for IPO investment is to research. And don’t just do surface-level research by looking at some business sites or IPO news articles; really dig deep to find out as much as you possibly can on private companies that are about to go public.
In the early days before these companies go public, news about them and objective views of their situations can be hard to come by, so you’ll need to put in a lot of effort here to get the details you need. Look online for any info you can find on the company, its rivals, general state of affairs, industry trends and health, and so on. The more you learn, the better placed you’ll be to make smart investments and avoid bad ones.
Another good tip when building your own IPO strategy is to look for and focus on companies that have good brokers. Big investment banks and quality underwriters tend to know what they’re doing and associate themselves with quality companies that have good chances of success. This doesn’t mean that smaller brokerages aren’t capable of working with promising businesses or that the big brokers don’t make mistakes, but it’s a good general rule to follow if you want to keep the odds in your favor.
For example, a big, well-known broker like Goldman Sachs will tend to be quite selective about the companies it chooses to support and underwrite. Little-known brokers are less selective and more likely to link up with brands that won’t actually see all that much success.
These are just a few simple tips to get you started on the path to success with IPOs, but it’s important to really take your time and look for other guides, tutorials, and hints to help you get started. Caution is recommended above all else when it comes to IPOs; this is especially true for first-timers, as you’ll need time to understand how IPOs work and how you can make the most of them. Hopefully, this guide can help you get off to a good start.