Best Tips for Buy IPO Stock on First Day
It is tempting to invest in IPOs but here are some reasons to think twice before you do so.
At first, is a good idea. If I had bought 100 Reliance on its IPO in 1986 till 2017.
The problem is that we think like that because we missed the last Reliance, and now we are trying to find it again. However, for every RELIANCE that appears, there are a lot of losers.
From 2001 to 2017, if I had bought the average IPO closing price and held it on for 3 years, I would have under performed the market by more than 20% points per year.
I advise you to read The Intelligent Investor by BENJAMIN GRAHAM.He covered one chapter about IPO’s:
1. Most IPOs under perform in the long run.
2. It is hard to predict how much the price would rise the first day. Under-pricing, the first day return, is not high as it seems on average.
3. Institutional investors flip the IPOs in anytime. They get in at low prices and make a quick buck and tend to sell out quickly.
Hence, I would highly advice against buying IPOs on the first day. But still some of interested Buying IPO in 1st day will cover few points which need to understand before it
If you want to invest in an IPO, I suggest that you do a full due diligence and wait until the lockup expires. The price will fall as insiders start selling. You can then decide whether you want to buy the firm or not.
#1. Losing the opportunity to take profits
Every person felt like this when they applied but not getting allotment of IPO.so they rush for IPO buying on 1st day of listing.
IPOs can be unpredictable in the first few days of trading. Plan your selling strategy. You can lock in your profits once you have achieved your target returns shortly after listing day.
Unless you really believe in the IPO stock for long-term investment, take the chance to cash in on your gains whenever the opportunity presents itself. You can always decide to buy it back later when you are more comfortable with the trend of the stock.
#2. Chasing IPO stocks on the first trading day
If you think IPO is potential for future and you want to add more shares of that IPO stocks. Best way to add with time. Always avoid rush buying in IPO shares. Go with averaging method. Add small smallqtn in every decline.
#3. Investing with stop-loss plan
Every now and then, there will always be a chance that you may invest in the wrong IPO stock. be prepared to cut your losses. Some stocks trade sideways without no volume is its advisable to put Stop Loss strictly once its hit lower volume of Avg 10 Days of his listing.
It is also about how controlling your losses. plan your stop-loss strategy early on to protect your investments.
#4. Don’t Follow hypes, publicity is key to oversubscribe Bad IPO.
Underwriters want to make sure that IPO is oversubscribe and going to be successful even if fundaments of IPO not supported. So best way is create hypes about IPO in Market with advertisement &Gray Market Premium
Expect IPOs to be heavily promoted by underwriters because it is their job to sell them to the investing public.
Avoid buying an IPO just because your broker recommended this to you or you heard from your friend that the stock is many times oversubscribed.
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I hope it helped you. Above Article : How to Buy IPO Stock on First Day?
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