Gregg Jaclin — Research IPOs to Better Understand Them

IPOs, or initial public offerings, are an exciting time for investors. IPOs are the first time a company offers stock to the general public. Sometimes, they have already issued stock privately. Other times, they have never issued any form of securities ever before.

People love the idea of an initial public offering because there’s so much potential involved in something new. When they look back over the stock market’s history, investors want to remember the great IPOs of the past. Companies like Apple and Amazon are extremely attractive to investors today. The only thing better than being invested in their stock would be owning it continuously from the beginning.

However, not every IPO is a big success. In recent years, Peloton and Lyft have had initial public offerings that were largely regarded as failures. In fact, shareholders in Lyft sued the company over inflated share prices. When it comes to IPOs, investors should be careful. Many analysts advise the average investor to steer clear of IPOs entirely. For those who do want to take the plunge, it’s essential to do plenty of research.

Think about it this way. Any investment in the stock market is risky. IPOs are even less proven than other stocks. Initial public offerings are always heavily hyped in the financial press, but they often don’t see lasting success. Some companies will have a strong IPO. The stock price goes up. But after eight or twelve weeks, the stock cools. Using mobile tools like ClickIPO and Renaissance Capital or even newsletters like StrictlyVC helps investors develop a more holistic understanding of a company’s financing, overall health, and expansion prospects before buying into its IPO.

IPOs are also challenging for the average investor to get in on. Most brokerages will only let qualified investors participate in IPOs. Qualified investors need to demonstrate that they have the investing experience and resources to understand what they’re actually getting into.

Initial public offerings are exciting in part because of the uncertainty of what they might bring. Investors should not participate if they can’t absorb that risk. Doing thorough research online and reading traditional media releases about upcoming IPOs can help investors make prudent IPO investment decisions.