Profit From Public Investment

It is really very seductive and alluring to buy an IPO (Initial Public Offering) at its offering price. Everyone thinks of riding the stocks and flipping them to make some good amount of cash. But guys, wake up and come out of the fantasy world! It is not as easy to gain Profit from public investment as you think. You need to understand that public offerings are nothing but a way for companies to raise capitals for new processes, projects or operations and not a short cut ticket to become rich over night for the average investor.

An IPO i.e. Initial Public Offering is offered by a private company to the public. It is the first sale of stock that is generally offered by smaller, younger companies who need funds to establish themselves. However, in many instances, it is also seen that well-established companies offer IPO’s for new processes or additional cash inputs. Companies usually take the help of investment banks to go public, which in turn “underwrites” the process. Underwriting is nothing but the authority to investment banks to raise the capital from the public on behalf of the companies that are issuing the securities.

There are several “hot IPO’s” which rise dramatically above the offered price on the very first day itself. Seasoned investors buy them just to flip them for getting a much higher profit. Generally the stocks are not available at the offered prices to the average investor and if the average investor gets a stock offering, then it is generally the one that he does not want. Although investing in a brand new stock always has some risks attached with it, there is always a chance that you might get lucky and earn some quick money by flipping. However, by flipping them at such an early stage, you are actually depriving yourself from the long-term profit from public investment.

Experts and researchers say that IPO shares generally perform mush worse than shares of seasoned companies in the first three years and in fact have negative returns. Experts state that of all the companies that became public between 1989 to 2000, about one-third of the companies’ share prices went down over 50% to their opening price, while only one-fifth of the companies have actually seen a doubling of their share offering price.

We can not afford to ignore the fact that people have made huge amount of money from IPO’s of companies like Google. However, newbie investors should try to get the shares early and as close to the original offering price as possible and sell the stocks just before the share prices begin to decline.

In order to gain Profit from public investment, you must have a bit of far sightedness, coupled with a very high degree of skepticism and a little strategic planning.