Does ‘IPO’ spell in­vest­ment suc­cess?

The Covington News - - BUSINESS -

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.

Tom Sch­midt

In­vest­ment Rep­re­sen­ta­tive

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