Should I Invest in an IPO?
What you need to know to make the right choice.
IPOs allow the public to invest in, and profit from, the growth of a company. Many investors are finding that IPOs are a great way to make money, but it’s not for those looking to make a quick buck. The focus of IPOs now is long-term investment.
There is a lot of discussion surrounding whether or not investing in an IPO is a good idea. Some say that there is too much risk in putting money into new company that they don’t know much about. Many ask the question, “Should I invest in an IPO? Is this right for me?”
There is no right answer to this question. There are many benefits and many have made a lot of money from investing in IPOs, but others have lost big when they didn’t do their research or the company just didn’t survive the competitive market. Alpenrose is here to provide you with the tools to help make your decision. We can also guide you through different investment opportunities.
What is an IPO?
IPO stands for initial public offering. This is the first sale of the stock issued by a company to the public. Before the IPO step, a company is considered private. When stocks of the company are offered to be purchased by the public, it starts the journey as an IPO. The public is everyone else who wasn’t involved in the earlier stages of the investment process. An IPO is also referred as “going public.”
Advantages of investing in an IPO
IPOs allow institutional and retail investors to become shareholders in a once-private company.
There is a lot of appeal in investing in an IPO. There is a lot of potential to make a lot of money by buying stock at such a low price, especially if the company is successful.
By investing in an IPO, you are given access to unlisted stock. Yes, they will be listed on the secondary market eventually, but not at the low price that will be offered while an IPO.
Getting in at the ground floor can be an exciting and profitable experience for an investor. If you strongly feel that a company will be successful, investing in the IPO will allow you to benefit in the long-run and invest before the price of the shares go up. Some of the most successful companies experience as high as 1000% price increase or more in the price of stocks. In some situations, the price could even increase rapidly for short-term gains.
IPOs are attractive to many investors because they find that they can cash out on shares and get their investment back easily, creating liquidity. It can also allow investors to sell the share quickly with little transactional costs.
Why Some Investors Avoid IPOs
Though there can be a lot of profit made from an IPO, other investors are a bit cautious when it comes to buying unlisted stock.
One reason in investor may be skeptical to buy into an IPO is the lack of history. New-to-market companies don’t have the historical performance or data that can tell investors that this will be a good idea. In fact, there aren’t any financial records, because when the company was private, it wasn’t required to disclose any of that information. As an investor, you will have to predict how the company will perform post-IPO.
Volatile price fluctuations can come with an IPO. There have been times where shares fall more than 50% of an extended period of time. Since IPOs create liquidity, many company owners may sell their own stock, which doesn’t look good to some investors – leading them to sell their stock as well.
Do your research– Make sure you get as much information on the company as you can, which can be difficult when the company is in the planning stages of going public. Researching the company, competitors, press releases from the past, and overall success can be a good first step. Becoming familiar with the business in question, its business model, management team, and goals will allow you to make a smart decision on whether or not it’s a good idea.
When doing your research, you also want to know the risk that comes with the investment. After knowing how the company operates, you may feel comfortable enough to make an investment, but investing in a new-to-market company, like any security, cannot guarantee success. Many scenarios have landed investors with stocks that sell under the initial share price.
Choose a company with strong brokers– A company with a strong underwriter and investment bank is generally trustworthy, though that’s not guaranteed. Be careful with companies with smaller, unknown brokerages.
Be cautious– If you feel something is off, chances are it is. There is a lot of uncertainty surrounding IPOs, mostly due to lack of information and history. Not disclosing financial information may benefit the private company, but this puts investors on edge.
Alpenrose as an SEC-Registered Advisor
Alpenrose Wealth Management International AG, the sister company of Alpenrose Wealth Management AG, is now a registered investment advisor with the U.S. Securities and Exchange Commission (SEC). Together with our partner Swiss private banks, our company can now offer the full Swiss private banking experience to American clients, both resident and non-resident.
Building on many years of experience in private banking in Switzerland, Alpenrose Wealth Management International AG provides investment advisory services to U.S. clients. Swiss banking is highly regarded around the world, well-known for being sophisticated and discreet. In 2017, it was reported that $7.5 trillion in assets are held in Swiss banks, and almost 51% of that is generated from clients outside of the country. Choosing Switzerland as a banking destination is choosing years and years of financial stability and growth.
The advantages of having an account in Switzerland include currency and investment diversification, asset protection, and the possibility to deposit assets in some of the oldest and best capitalized banks in the world.