Do your research before investing in IPO stocks to avoid getting in at the wrong time.

IPO (Initial Public Offering)
-The first time the stock is released to the public and is available for purchase

The Problem With IPOs:
-The stock market is based on future expected growth
-IPOs need time to set up
-Preferred shareholders typically sell their shares as soon as the IPO comes out, which causes the stock to go down
-Sometimes preferred shareholders are required to hold their shares for 60-90 days, the stock can decrease at this time instead of dropping initially.
-As time go on, more shareholders can sell their stock. You need to read the find print to find out when this happens.
-Let the charts set up, give them time and do not hurry
-Don’t jump into things too quickly, IPOs should be avoided initially
-Understand why you are buying the stock. Don’t just purchase it because it’s a company you use (e.g. Zynga or Groupon)
-A better time to get in is after the stock has decreased over a period of time and begins to go back up. You don’t need to get in right away.

Example:
-Facebook (FB)
-Everyone expected FB to go way up, but it went very low because preferred shareholders sold their shares right away

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14 COMMENTS

  1. the company gets no cash from the secondary market right? I still don't completely understand how a company gets cash from the ipo. They get cash from the underwriter…then they sell off the stock, what happens between the primary and secondary market?

  2. @ryan based off his missed opportunity video and experience, I would base it off how high you believe you believe the price is going. If the profit margins are gone. Find a new play. However if there is still meat on the bone. And volume and the technicals are showing good signs go for it

  3. I think you should read a paper by J.Ritter (1991), IPOs on average have large price appreciations (ca.15% in the US) on day 1 of trading. Furthermore, given that post IPO companies have been found by numerous academics to under-perform equivalent assets and benchmarks for up to 5 years following the IPO, I wouldn't recommend buying them unless you are lucky enough to get one at the offer price.

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