Should You Invest In An IPO? Absolutely Not!

a big NO, Investing in IPO’s can be one of the amateur mistakes that investors make.

Let’s find out why we should not invest in IPO

“ Stocks were made to sell “ Caveat emptor — “ Let the buyer beware “

What is the objective of investing in an IPO?

People invest in IPOs with the hopes of investing in a young company that gives them big returns or profits in the long term. While some IPOs help you achieve your bucket list and ultimate financial goals, the company’s chances of shooting high are close to nil. There have been exceptions throughout history, but we recommend against exploring this field if you’re a novice investor.

Here are four reasons to not invest in IPO

Management is selling

The owner’s of the particular business is running the company. Do you think they will sell their assets for cheap? Assuming that a company is underpriced at an IPO is a risky assumption. The knowledge of the market is stacked against you.

Allocation strategy

When we subscribe for an IPO, We do not know what will be allotted to us. Usually, we apply for maximum size in our category in the hope of at least landing 1 or 2 allocations.
What if it is undersubscribed on the IPO? You will be allotted all for all the subscriptions that you have put in. Meaning — maximum allotment for a bad company.
If it is oversubscribed? You will be most probably allotted one subscription at the most. Meaning — minimum allotment for a good company.

Do you really wish to operate on these odds?

No Historical Evidence

There are so many companies with historical evidence to invest in. New companies entering the market through IPO do not have evidence of a good performance, and usually, it happens that the year these companies are IPO’ing the numbers they report are inflated, to get a good price.

Habit Forming

If a person earns well from one or two IPO allotments, they repeatedly invest in the IPO. Soon, it turns into an endless cycle of investing in an IPO in the hopes of getting great profits, but due to the above-mentioned reasons, it will mostly end up in an overall loss.

In every case, investors have burned themselves on IPOs, have stayed away for at least two years, but have always returned for another scalding. For as long as stock markets have existed, investors have gone through this manic-depressive cycle.
— Benjamin Graham, The Intelligent Investor

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