Is there an advantage to buying shares during an Initial Public Offering?

Question

Is there an advantage to buying shares during an Initial Public Offering

are there any financial benefits such as less brokerage fees, etc. during this time?

Answer 1

First of all, it's not all that easy to buy into most IPO's. IPO stock is often priced to go up, insuring profits for the underwriters and the first tier of buyers. This built in profit reflects the risk of buying something when there is no market process to support price discovery. And there's real risk: sometimes the IPO will fall on it's face.

Since the underwriter begins with millions of shares, they will first look to big block buyers to move the lion's share of the offering, no time for small investors. These will often be big customers of the investment bank. Sometimes, the investment house will reserve a block of IPO stock for it's smaller retail customers. That's the way it works in reality.

In some cases, some IPO stock may be reserved for employees of the company. And some weird companies like Google and Vonage have come up with more democratic ways of peddling the initial stock offering, although it's not always clear that these represent good deals.

Just remember that buying an IPO is not a guaranteed road to riches. For example, Vonage went right from IPO to shareholder class action suit.

Answer 2

Yes: Prior to the IPO There is a prospectus that is developed. Careful reading of the prospectus will give an incite to the viability of the propose business. The IPO price is set, you don't have to worry about market movement. If you believe that the management is going to do what they say, and the company can do what it plans to do then you are looking at a company that will make money. Remember to check the competition, If the new company is going to give them problems, you have a good pick.

If you buy at the IPO, The market will determine if the investment is a buy, hold or sell. If it is a buy or hold, you will make money. If it is a sell, it is possible that you may loose on day one. Into the life of the new stock it could go up. Usually when you are buying stock you have no information to go by, this is why the IPO is so valued.

Answer 3

Benefits Of Buying Shares

Answer 4

Yes, but... As a rule it takes serious money and an invitation (connections). In theory it is possible through a handful of exchanges that have popped up to trade illiquid and private shares. The problem is that this isn't practical in most cases for the small investor because the folks selling aren't interested in selling thousands of dollars at a time. They might be willing to sell hundreds of thousands at a time, but millions is probably the more common goal. Illiquid shares also may be limited in who is allowed to buy them. I would expect the marketplace to open up to the small investor eventually as it has with "when issued" shares...but not right now.

Answer 5

Depends on the company. I will give you 3 examples from last year's 3 IPOs that go up, down and down first,up later. Plot their 1year price charts for details. They are

Master Card, symbol MA (up and up)
Vonage, VG (opened at $13, now it is only $6)
Tim Horton, THI (long term up)

as for brokerage fees -- do not expect discount just because it is an IPO

Answer 6

Only that it's cheaper -- assuming the company's a good investment.

Answer 7

typically, that is when the stock will be at it's lowest cost, and that growth will quickly follow.

Answer 8

Yes.