Three Key Tips for Investing in an IPO


No one has ever said IPO investing was a walk in the park.

Unbelievably, an astonishing nine out of every 10 IPO investors fail because:

  1. Many don’t have good training, or guidance
  2. They’re not aware of risk, thinking the stock market is a “get rich” scheme
  3. They don’t think long-term.  They want instant gratification.
  4. They blindly follow the crowd, becoming one of the sheep
  5. They fail to trade without emotion.
  6. They fail to trade with a property strategy or even diversify.
  7. They fail to learn from their mistakes.

In addition, one of the worst things many investors – especially new ones do – is they get caught up in what the press hounds would have them believe.

But that’s a great way to lose money.

Everyone in conventional financial media shouts about their favorite stock picks.

But we believe that if you really want to become a better investor then you need to be looking at where the smart money is heading. You need to understand what is truly driving the markets and how you can take advantage of these moves as – and before – they hit the mainstream.

That’s how the long-term wealth can be found.


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Three Tips to Follow Before Buying an IPO

Tip No. 1 – Do your Due Diligence

It may be tough to get information on a company prior to its public listing. They don’t have a good deal of analysts covering them. So, you want to search online about the company, its competition, its sector, and how a particular company can make money.

Then again, you can always choose to blindly throw money at an IPO because others told you to do so. But that’s not safe at all. In fact, it’s quite foolish.

Do you understand the company? For example, could you explain what the company does to a three-year-old? Any of us can explain what Coca-Cola does, but could you simply understand and explain what ACADIA Pharmaceuticals does with Parkinson’s disease Psychosis (PDP)?

If the answer is no, should you invest in the company?

Tip No. 2 – Read the Prospectus

Understand who will be running the company you want to invest in. Understand their track records for success and even failure along the way. Is the Board well-rounded?  And most importantly, does the Board have “skin in the game,” meaning do they own a piece of the pie? Understand where every nickel and dime has been spent, too. Understand debt.

The purpose of a prospectus is to give details about the company's business model and objectives, the number and classes of shares being offered, and company financial data. It also includes risk factors, how proceeds will be used, dividends, and other relevant information.

The idea behind the final prospectus is to give all of the information a prospective investor would need in order to make an informed decision about whether or not to invest.

Tip No. 3 – Wait for the Lockup Period to End

During this period, underwriters and insiders of the company are not allowed to stock shares for a certain timeframe – up to two years. If the underwriters and insiders are willing to let the lock-up period finish, it may be a good indication of the company’s bright future. 

In short, be well-informed before buying an IPO. Do your due diligence.

After all, an informed investor is usually a richer, happier investor.

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