Historically, the IPO market has long been an exclusive club of institutional and high net worth investors, with average individual investors left empty-handed and clamoring to find a way to get their hands on IPO shares. It’s understandable, who hasn’t heard a tale of someone investing in companies like Google or Amazon during their public debut only to become wealthy a few years or even months later? After all, there’s a lot of media attention focused on IPOs, particularly the successful ones. The hype surrounding IPO opportunities begs an important question: What are the benefits and why should you invest in IPOs?
IPOs are becoming more accessible for regular investors. 2019 is poised to be a big year for IPOs with Uber, Beyond Meat and Pinterest already going public this year. Technology is finally catching up to demand as well as ClickIPO has made initial public offerings accessible to individual investors for the first time. The average investor can now browse and purchase IPOs that come to market through our technology, opening up the IPO market to a completely new audience. With the number of public offerings anticipated in 2019, investors can purchase units of lesser-known companies within the same sector as industry leaders. Having access to IPO shares of a company new to the market in an industry-leading sector can be a good opportunity to hold what could be a well-performing stock.
There’s huge upside potential for buying IPOs. The prospect of making profits gets people excited about IPOs for good reason. If an investor has the opportunity to buy at the low IPO price and the stock trades up they can ultimately sell for a gain. According to Nasdaq, in 2018 the overall average return for all IPOs was about 25.9 percent. The top five performing IPOs of last year had returns ranging from 186 percent up to more than 571 percent throughout the year. However, the five worst performing ones saw declines of anywhere from 41 percent to 72 percent throughout the year. There are risks to be aware of when investing in IPOs, but there can also be large potential upsides. Capital markets can be a key part of any investment portfolio and IPOs are a great way to participate in growing companies.
IPOs give you the opportunity to invest in a company or industry you’re passionate about. It’s not just the prospect of making a quick buck that gets people excited about IPOs. For the buy and hold investor, investing in an IPO provides an opportunity to get in on the ground floor of a company with an eye toward earning potential returns down the road. This option is even more valuable when it’s a company or industry you’re passionate about. Investors should understand and care about the company, the industry, its financials and its place in the market in order to have a successful investment. Companies want shareholders to be made up of people who use their services or product, so don’t hesitate to do research on the companies you want to invest in to ensure their mission and services align with your interests.
Companies have been going public for centuries, but the landscape of who can invest in IPOs is rapidly changing due to innovative technology making it more accessible to invest in IPOs. If you’re interested in learning more about IPOs, download the ClickIPO app today to discover the opportunities to access new public companies coming to market.
Risk of Investing in Initial Public Offerings (“IPOs”)
There are specific risks in investing in an Initial Public Offering (“IPO”). Among other things, the stock has not been subject to market valuation. Those risks are described at length in the prospectus, and we urge you to read the prospectus carefully to understand those risks before investing. An IPO is the first sale of stock by a private company to the public and may not be suitable for all investors. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded. IPOs are a risky investment. For even experienced investors, it can be difficult to predict what the stock will do on its initial day of trading and in the near future because there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, which are subject to additional uncertainty regarding their future values. Read more information regarding the significant risks associated with investing in IPOs.