Hi friends, hope you enjoyed your long weekend. Well the fun time is over, so let’s get down to some serious business.
Just a week back I was talking to an
acquaintance and he expected a few stock market tips from me. He also
told me that he prefers to invest in IPOs (Initial Public Offerings)
instead of the secondary market as they are much safer. So just out of
curiosity, I asked him, how he selects the right IPO to invest in. I got
a funny answer. He said he invests in any IPO which is much hyped or is
which has been advised by his friends or colleagues. Well I found it
really saddening that people invest in IPOs based on what others
recommend instead of researching themselves, and then call IPOs much
safer than the secondary markets. But this is the irony of the Stock
Market. People follow each other without researching themselves. I knew
it happened in secondary market, but never expected that it’s the same
case for IPOs too.
So today I will just stress on a
couple of points that a person should focus on before investing in an
IPO. You should thoroughly evaluate the below given points before
investing in the IPOs. These will help you in picking the Good IPOs and
avoiding the not so good ones.
- Evaluate if the company is stable or not:
The company’s prospectus for the IPO will show how much revenue and
earnings the company has generated over the past couple of years. Always
see if the company is making adequate profits or not.
- Check if the management has a Stake in the company or not:
Check the company’s prospectus and determine the stake, the management
carries in the company. It’s always considered beneficial if the
management holds a large stake in the company. In majority of cases,
this is a sign that the top management still believes in the company’s
future.
- Understand the reason to generate funds through the IPO:
The Company’s prospectus will state what the company will do with the
funds generated through the IPOs. If the funds are raised for the
expansion of the business, it will be good for the company and your
investment.
- Understand how the sector is performing:
Always analyse the growth potential of the sector also along with the
company. A sector which does not offer much growth, should be avoided.
Even if we take care of all the points
mentioned above, there is no surety that the IPO will do great. Remember
it’s a myth that IPOs are safer than the secondary market. Infact in
can me more risky since you hardly know anything about the company.
Always use your able judgement and try to rationalise if the IPO can be
beneficial or not. And always remember there is no better friend in this
market that your own wisdom and efforts that you put in to gain
knowledge. For that, we are always there to guide and assist you since
we at Moneypalm firmly believe – Together We Grow
Have a happy time investing friends. God bless you all.