Today I’m going to share with you my four key tips to trading and investing in IPO’s.
A lot of people are interested in trading IPO’s. For example, you want a nice hot stock, and it’s coming in, and then eventually it explodes later down the road.
The thing is that a lot of new companies come in because there’s a lot of great hype. And then you hope to get it near the bottom. Recently over the last decade, those IPOs have been coming out a lot later than they usually do.
That’s because now you have a lot of venture capitalists. There’s a lot of wealthy people that will invest in these companies’ weight early on. And you’re now getting the IPOs or the initial public offering much later than you usually would. Let’s say 10-15 years ago.
That’s because now there are new ways to raise money from crowdsourcing to private investors, angel investors, and all kinds of different ways.
However, there’s still an excellent opportunity if you’re investing in the right stocks at the right time. And you allow them to run you can make some significant investment decisions allowing that stock to move into the future.
Take a Look at The Market
If you invest it on Facebook even if it was early on in the IPO, which was not as early as way back in 2010 or earlier.
But even then, even if you invested in 2012, 2013, 2014, you’re still way up at higher prices. And that’s what you ultimately hope to do when it comes to investing in these other companies.
I want to share with you there’s a lot of different IPOs.
For example, like DocuSign right here has come out. You also have things like Uber. You have let’s see BJ’s as well. You have Dropbox and Spotify technology and Snap as well.
All these companies have been on the market now for a little bit of time. But not all of them are performing quite well.
If you take a look here at a Snap, you can see that this company initially opened up at this price. And now, in fact, at the current market price, it is lower.
Not the best things.
DocuSign – if you look a five-year, it’s a very near or even where it was.
Let’s check this out better on the chart. It’s a lot easier to see.
You can see this one right here starting to come in and possibly do a breakout. But you can see you at IPO time a little bit lower, here digesting sideways. It’s a lot higher than where it was.
But not anything amazing because it ran up if you got initially, and now it’s almost back breakeven over the last two years. Checking out BJ’s. Let’s look at a five-year. You could see this one; it’s almost back where it was.
What are the rules or thought processes to trading or investing in these stocks?
Rule #1 – Be Patient
You need to be patient and allow these things to set up. What a lot of people do is they get into these stocks, or they want to get in it real quick, and they don’t wait for big money to step in. They don’t wait for a nice breakout.
Look at anything like Facebook.
You have to be patient in this company to allow that stock to digest for almost a year to two years before that stock made its way.
If you look at even AMD recently, you know that stock over the last few years has been dormant. And now it’s continued.
This isn’t an IPO. But check out any other new company.
It takes time for these things digest.
Looking at Snap, it’s still not moving and breaking out past that IPO.
If you look at Alibaba, which was an IPO, there’s Baba.
You can see this one started at about a $90 a share, and then it pulled back a bit, so for a little bit of time, it went sideways.
And eventually, you had it’s nice and finally breaking out just a couple years later. You have to be patient to allow those things to set up.
Rule #2 – Know the Risks and Capital Investments
What happens is a lot of people they get into the stock. They’re not sure of how much capital to put in, but they overdo it. They put too much cash into an IPO because they think this is their investment.
Remember, IPO is a little more speculative. It’s a little more new. It’s not like Microsoft. It’s not like something that’s been around for a while.
If you look at Microsoft, it’s got a proven history. And it goes back many many years to right now 1987 or so.
Even a Procter & Gamble – many years in the past that has historical data.
But if you’re doing anything like a snap, well, you don’t have a ton of data. If you’re doing anything like a BJ’s Whole Foods or wholesale Club, it doesn’t have a whole past historical data. You need just to know the risks and the capital invested.
Let’s just say here’s your portfolio allocation. You don’t want to invest all of that. You might invest only a little part of that portfolio. Or even less into these IPOs.
That’s because that way, you still have the stability of your financial portfolio invested, but you have some exposure to the IPOs. And that’s the smarter approach that many people don’t think about.
Rule #3 – Take Profits Into Strength
A lot of people don’t take profits into strength. All they do is they hold on to these stocks. They think it’s going to be a great stock. I’m going to hold onto it forever.
I’ll show you something.
Here is Spotify.
It’s opened up, continues, and still lower.
Here is Sirius XM.
Look at this stock. We had our IPO right here, moved up, look good. Then sold off, and now it continues to be in the gutter for almost 20 years.
Think about that. Do you want to be stuck in a stock for 20 years?
And initially, it might have looked good. It was good for a few years when the big hype was 1995 to about 2000 — about five years. Then after a while, things just sold off and just continued to tumble.
My point being is that no matter what company (even GoPro), sometimes it has its days. And then they don’t evolve because they’re so big. It’s tough to turn a big ship around.
And here at this stock, it’s now multiple years in the gutter. Will it continue to break out as a speculative play? No, probably not.
Chances are it won’t. Sometimes they do, but it’s challenging.
Take profits into strength, and that is my rule number three. Because if you don’t take profits in the strength, the market will take them for you.
What do I mean by that?
Let’s say you got into the stock over here on GoPro.
Well, it goes up quite a bit of man this thing’s flying. At that moment, take a little off. Take half off a quarter off a third. Goes up a little more, another half, another quarter, another third.
And once it finally starts pulling back, maybe you’re out. Perhaps that was it. That was the investment. It was for a little bit. These companies don’t always stick around for an extended period.
Rule #4 – More IPO’s Will Follow
You need to remember. This isn’t the end. This isn’t the last one. There will be more IPOs. Just like here we’ve got BJ’s that just came out. We’ve got Dropbox, Spotify, Snap, and Uber.
There will be more companies. You might be looking at the reports, and you’re looking at, let’s say, Dropbox.
Here’s an IPO, here’s what it’s doing. Here is what’s happening, and maybe it’s not the one to invest. The chart doesn’t look good. It doesn’t look sustainable right now.
But things could turn around. It’s fairly new. But just like you had Twitter initially.
They’re not profitable. You can see it’s multiple years. It’s just the same where it is. But you do have some of those success stories like Facebook or many other companies.
Also, take a look at Tesla.
If you got into it here’s the IPO took a couple of years. And then it exploded. It was successful for many people if done accordingly. But remember if you miss it, there will be more. There will be more IPOs.
They keep coming. There’s Tesla came out in 2010. And you have a Snap now that came out in 2017. More IPOs will come. There’s Etsy that also came out in 2015.
You have Wix that came out in 2013, and Shopify came out in 2015.
You can see these things do eventually sideways action, and then you get that explosion effect that may happen. And that’s what you’re looking for.
You have to understand these rules and these concepts if you want to make it in the IPOs.
Otherwise, if you think I’ll just hold it invest it forever, some of those things as you saw, don’t pan out and don’t pay well.