Should Beginner Investors Invest in IPOs

 

An IPO gives you the ability to get into the wealth creation process early on by allowing you to get the shares of good companies at low prices. Taking this huge advantage into consideration, investing in an IPO does seem like the right thing to do. 

That said, not all IPOs have managed to perform well after being listed on the stock exchanges. Some have dropped down to half or even less than the price at which it was first listed. Considering the fact that all Initial Public Offerings come with this risk, should beginner investors still invest in them? 

To put it simply, of course. Beginner investors can invest in upcoming IPOs. Although the risk involved with an IPO cannot be eliminated outright, there are ways through which beginner investors can ensure that they don’t get stuck with an underperforming IPO. 

Things to keep in mind when investing in an IPO

First things first, before beginner investors get around to investing in an IPO, there are certain things that they should be aware of. Here’s a list of some of the things that they should do. 

1. Conduct thorough research into the company

The first thing that beginner investors should do before even thinking about investing in an upcoming IPO is research. You should get to know as much as possible about the company issuing the IPO, its business, and its financial status. 

The company’s prospectus is a good place to start. It contains all the key information about the company, its business model, and its financial statements. Go through them thoroughly and religiously. If the company’s business is something that you don’t understand or if the company has been consistently making losses, then it is advisable to refrain from investing. 

2. Keep an eye on the current market trends

The performance of an IPO is not only dependent on the company’s fundamentals, but also upon the current market trend too. For instance, if the current market trend is bullish, the chances of upcoming IPOs also performing well would be high. And similarly, if the current market trend is bearish, no matter how fundamentally good a company might be, it might still underperform upon listing.