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IPO Basics: What is an IPO (Intial Public Offering) Definition

November 19th, 2012

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.

Example

  • Facebook (FB)
  • Everyone expected FB to go way up, but it went very low because preferred shareholders sold their shares right away

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

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