Does ‘IPO’ spell investment success?
If you’ve ever spent any time among investors, you’re bound to have heard someone say: “If only I had gotten in on the ground floor of Company A (or Company B or Company C).”
In investment terms, “getting in on the ground floor” means buying a company’s shares when they first go on sale — an initial public offering (IPO), to use the official term. But is it really that desirable to invest in an IPO?
Initially, you might see a big spike in the stock price of a company that’s just gone through an IPO. But, over time, these companies are subject to the same economic and market forces as all other businesses. Consequently, their stock prices will go up and down.
So before you buy shares through an IPO, you’ll want to evaluate the company thoroughly. Are its products or services competitive? Does it have a track record of consistent growth? Does it belong to a thriving industry? Is its management team experienced? You can get some of this information from a company’s prospectus, but you will also want to do some outside reading, as well as consult with your financial advisor. Obviously, the more you know, the better off you will be.
In any case, if you do invest in an IPO, don’t go into it thinking that you are going to make a “killing.” Instead, look at an IPO as a long-term investment. If it’s a stock that fits well into your overall portfolio, getting in on the ground floor may help you build a strong foundation for achieving your long-term goals.