An initial public offering (IPO) is when a company sells its shares to the public for the first time. This allows the company to raise capital and become a publicly traded company.
Usually, the
purpose is to raise capital for the business.
However,
IPO is something I tend to avoid.
I don’t have any advantage
As a value investor, I need to assess a company's long-term
investment potential. I typically look at 10 years of financial statements to
make this assessment. However, IPO companies typically only provide the latest
3 years of financial statements. While these 3 years are recent, they do not
provide enough information to assess how the company has performed over time or
during a crisis. This is an important factor for me to consider when making an
investment decision.
Sellers have the advantage
Sellers in
an IPO, such as business owners, venture capitalists, and other stakeholders,
have a number of advantages. They can:
·
Set
the price of the shares.
·
Determine
the percentage of the company that is sold.
·
Choose
the date of the IPO.
These
advantages give sellers a significant amount of control over the IPO process.
As a
result, it is likely that IPO shares will be sold at a premium.
There is a lot of hype
generated
Brokers,
capital market banks, and company stakeholders have a vested interest in
generating interest, hype, and desire among the public so that they will buy
shares.
The
company, brokers, and investors all have a financial interest in the success of
the IPO. This can create a psychological disadvantage for buyers, who may feel
pressured to buy shares.
In conclusion
It is not
easy to find an advantage in buying an IPO as a long-term investment. The media
hype surrounding IPOs often makes it difficult to assess the true value of a
company. As a result, I typically ignore the media and focus on other
investment opportunities.
