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quote originally posted by BuFFdAddY:
Has anyone here been buying IPOs? Would love to have a little bit more insight.This message was edited by BuFFdAddY on 19-Oct-2010 @ 4:28 AM
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IPO (initial public offering) is a procces to list the company on the exchange. There are two reasons that a company may want to issue ipo. First, they genuinely need the extra cash to "expand" and are looking for angel investors rather than venture capitalist. The second reason, maybe to "cash out" on their own business. The idea of buying an ipo is that you have confidence in the company's operating procedure and ways of generating revenue and thus, increases retained earnings and thus maximizing earnings for shareholders. Therefore, we as the public will ballot for these stocks. The reason why IPOs increases alot during the 1st week is that some people did not manage to ballot succesfully the ipo and hence, would like to purchase some or more in the open market. This is more evident in stocks which are over subscribed by many times. People knows such things will happen and hence, want to make so quick profits and hence, they jump in to contra and sell when the stocks go up. The maximum for contra is 5 days and therefore, within 1 to 2 weeks, price mostly stabalise. Another thing to note for IPO is that not all companies can be subscribed to. In my opinion, some are looking to pull a fast one by marking up their price by alot. when i say marking up the price alot, it means that they price their stock way above its Net asset value per share and its earnings per share are very low. Depending on the industry the ipo is in, the importance of each fundamentals might be different. Some companies, even though they price their ipo above its NAV per share, they have a stablizing manager that ensures the stock stays above the ipo price during the initial lunch. But do check that the fundamentals are strong as well. I would also like to add in that i will not be applying for oxley holdings.
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