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How to Start Investing in IPOs

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Should You Start Investing in IPOs?

Investing In IPOSInvesting in IPOs sounds like fast money to people who do not know a lot about the stock market. When people think of initial public offerings, they imagine what it would have been like to invest in Microsoft’s IPO or in some big oil company when it just got started. However, those are actually rare results. Many IPOs fizzle or they start auspiciously before ending up in disaster.

Still, there is no question that investing in IPOs could be a valuable part of any investment portfolio. Just as you should have some very conservative investments, you should also have some that push the limits and take risks. As long as you moderate the amount of money that you invest in these instruments, you will not risk too much while you retain the possibility of a large return.

 Guide to Investing in IPOs

•             What is an IPO?

Prior to an IPO, a business typically has only one or a few owners. The business is usually small and often depends on private capital investment as a source of funding. When it makes its initial public offering, the public has its first chance to buy shares of the company. Just prior to the public sale, some large institutions will have a chance at investing IPOs.

•             The Timing of an IPO

Companies usually time their IPOs in order to maximize profit. Usually the company will have made name for itself. A significant sector of the public will know about the company and recognize the value of its goods or services. A properly timed IPO will create a lot of instant cash flow for the owners of the company.

•             You should take all the same precautions investing in IPOs as you do with any other stock. Research the fundamentals of the company. Do not start investing in IPOs until you know everything possible about them.

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