In the previous article, we have learned three things to note before investing in IPOs. While a deep analysis upon the companies and the brokers are important, the next points are as important to note. Find out the rest below!
Always proceed with caution
Investing in IPOs are surrounded by uncertainties. Keeping yourself cautious could really help you from losing money. Noted from Investopedia, brokers usually already have a list of their favoured clients to give a heads up on decent companies’ IPOs. If you are not on the list, they would probably lead you to other investment choices that have been rejected by the “big money”. Next time a broker offers you a certain company, take a few minutes to think. Why would a prospecful company still have so many shares left to sell?
Consider waiting for the end of the lock-up period before investing in IPOs
Quoted from Investopedia, the lock-up period limits investors involved with underwriters and company insiders from selling any of their shares. This period is legally bound by a contract and lasts for around three to 24 months. Investors who violate the contract will receive a penalty.
Upon the lock-up period, owners of stock usually can predict the real valuation of the shares. However, despite knowing the overvaluation, it is still illegal for them to sell it. Due to the legally binding lock-up period, the investors can only sell the shares once the lock-up period expires.
Waiting for this period to end could be a good strategy. If they hold on to it until the lock-up period expires, then it could be a sign for the company to have a sustainable future and vice versa. One important thing to note is that a good company and a worthy investment is mostly unchanged by the lock-up period.
Read also: 5 Tips Before Investing in IPOs (Part 1)