Do your research before investing in IPO stocks to avoid getting in at the wrong time.
IPO (Initial Public Offering)
- The first time the stock is released to the public and is available for purchase
The Problem With IPOs
- The stock market is based on future expected growth
- IPOs need time to set up
- Preferred shareholders typically sell their shares as soon as the IPO comes out, which causes the stock to go down
- Sometimes preferred shareholders are required to hold their shares for 60-90 days, the stock can decrease at this time instead of dropping initially.
- As time go on, more shareholders can sell their stock. You need to read the find print to find out when this happens.
- Let the charts set up, give them time and do not hurry
- Don't jump into things too quickly, IPOs should be avoided initially
- Understand why you are buying the stock. Don't just purchase it because it's a company you use (e.g. Zynga or Groupon)
- A better time to get in is after the stock has decreased over a period of time and begins to go back up. You don't need to get in right away.
- Facebook (FB)
- Everyone expected FB to go way up, but it went very low because preferred shareholders sold their shares right away