Below is a reblog from Gandakoh's article:
"IPO is the initial public… you know what, if you are a trader I don’t need to explain to you what an IPO is. If you don’t know what an IPO is then this post is not for you. Go to google. Research what an IPO is and come back to my post.
When you hear the word “IPO” what comes into your mind? Stories about how if you invested in URC at few pesos it is now one hundred plus. Stories that you could double or triple your money in a few days after an IPO. Well, it's true. There are some stocks that went from 2 pesos per share to hundreds. Take for example HVN. The IPO price is somewhere above ten pesos. Its 10.5 pesos I believe. It was 10.5 pesos per share three years ago and now it's over 400 pesos. Imagine how many luxury cars or houses on hills you could have owned if you invested 500 thousand pesos on it. (this was an actual line a stockbroker friend of mine told his client) These things do exist but think about it like this. Take, for example, Manny Pacquiao. 8-division world champion. A billionaire. He became rich from boxing. For every one Manny Pacquiao there are maybe 400 boxers who are broke or never made it in boxing. It may not only be 400, but it may also be more. So, in every successful IPO stories written or you have heard, there are a lot of unsuccessful ones. Chp debut at 10.75 and now priced under 3 pesos. Dmw, mrsgi…there are just too many…
Take a look at these charts. These are what we had this year alone.
But of course there is KPPI this year.
For some strange reason, many investors line-up to buy IPO’s. Di makatulog kakahintay makakuha ng shares. Alam ba talaga nila binibili nila?
Maraming negosyo ang nangangailangan ng pondo para lalong lumago. Ayaw nila sa bank dahil sa interest rates at mas ninanais na mag IPO sa PSE. First time na e bebenta nila sa publiko ang parte ng kumpanya nila which are called shares and marami naman ang excited makakuha ng shares ng mga kumpanya na yun na mga traders.
But, think about why a company would want to go from private to public. Why would they do that?“Going public involves a mountain of paperwork, auditing, and ongoing reporting requirements. And that’s not even including the millions of pesos it takes to go through the whole process.
So, why would a company go through all of that trouble? If a company is successful, it probably means that everyone within the company is making money, right? Why would they want to sell off part of their business to the public? Well, there are a variety of reasons. The major reason is so the company can get liquidity… or rather, so the early company founders and investors can get liquidity” -Cody Shirk
Firstly,there is always a conflict of interest between sellers of IPO, and buyers of an IPO.
An investor make profit when it buys stock at cheaper valuation and sell when valuations are fair or expensive.
On the other hand, when a company comes with an IPO, it wants highest valuation for the IPO so that they are able to raise maximum capital for the shares issued.
So there is a clear conflict of interest between the IPO issuers and subscribers.
If the issuer sells the IPO at highest valuation, it will be a great disadvantage for a buyer. Since issuers have the pricing power during the IPO, there is no way a subscriber can negotiate (the only way is to let the company get listed and wait for the prices to decline till they reach reasonable valuations)
Secondly. Company owners have much better insight of the real valuation, as they are the insiders, and they can manipulate the numbers and draft the prospectus to paint a rosy picture about the company.
On the other hand, since a subscriber has little to almost no information about the company’s real valuation, he has no other way but to rely on the prospectus, and financial statements of the company which are mostly window dressed. This again puts subscribers at real disadvantage, which means the game is already rigged in favor of issuers.
Finally, IPOs are never bought, they are always sold. and most of them take advantage of the market sentiment and time their issues when positive sentiments in the market are at its peak and people are willing to buy anything for any price, expecting to make windfall gains, without looking at the valuations.
No wonder why you will find a plethora of IPOs in a bull market and fewer in a bear market."
"IPO is the initial public… you know what, if you are a trader I don’t need to explain to you what an IPO is. If you don’t know what an IPO is then this post is not for you. Go to google. Research what an IPO is and come back to my post.
When you hear the word “IPO” what comes into your mind? Stories about how if you invested in URC at few pesos it is now one hundred plus. Stories that you could double or triple your money in a few days after an IPO. Well, it's true. There are some stocks that went from 2 pesos per share to hundreds. Take for example HVN. The IPO price is somewhere above ten pesos. Its 10.5 pesos I believe. It was 10.5 pesos per share three years ago and now it's over 400 pesos. Imagine how many luxury cars or houses on hills you could have owned if you invested 500 thousand pesos on it. (this was an actual line a stockbroker friend of mine told his client) These things do exist but think about it like this. Take, for example, Manny Pacquiao. 8-division world champion. A billionaire. He became rich from boxing. For every one Manny Pacquiao there are maybe 400 boxers who are broke or never made it in boxing. It may not only be 400, but it may also be more. So, in every successful IPO stories written or you have heard, there are a lot of unsuccessful ones. Chp debut at 10.75 and now priced under 3 pesos. Dmw, mrsgi…there are just too many…
Take a look at these charts. These are what we had this year alone.
For some strange reason, many investors line-up to buy IPO’s. Di makatulog kakahintay makakuha ng shares. Alam ba talaga nila binibili nila?Maraming negosyo ang nangangailangan ng pondo para lalong lumago. Ayaw nila sa bank dahil sa interest rates at mas ninanais na mag IPO sa PSE. First time na e bebenta nila sa publiko ang parte ng kumpanya nila which are called shares and marami naman ang excited makakuha ng shares ng mga kumpanya na yun na mga traders.
But, think about why a company would want to go from private to public. Why would they do that?“Going public involves a mountain of paperwork, auditing, and ongoing reporting requirements. And that’s not even including the millions of pesos it takes to go through the whole process.
So, why would a company go through all of that trouble? If a company is successful, it probably means that everyone within the company is making money, right? Why would they want to sell off part of their business to the public? Well, there are a variety of reasons. The major reason is so the company can get liquidity… or rather, so the early company founders and investors can get liquidity” -Cody Shirk
“…the basic business of finance is buying low and selling high, and it is sometimes hard to resist the secondary cynical explanation for going public, which is that you do an IPO to top-tick the market for your stock and sell at the very high point of hype.” -Bloomberg
Think about that for a second, if you are buying an IPO. As an investor, you are literally putting money into the pockets of those early founders and investors.
That isn’t always a bad thing. There are many, many companies that have gone on to be very successful after their IPO. Investors who bought those companies are very happy, as those stock prices have continued to go up.
But, there is another side. How do you know why a company is going public? Is it so they can get more capital into the business so they can continue to expand? Or is it because they are simply trying to cash out at the public’s expense?
IPOs are usually seen as (or made to look like) a great way to make windfall gains in a short period of time. The steps are very simple:
Think about that for a second, if you are buying an IPO. As an investor, you are literally putting money into the pockets of those early founders and investors.
That isn’t always a bad thing. There are many, many companies that have gone on to be very successful after their IPO. Investors who bought those companies are very happy, as those stock prices have continued to go up.
But, there is another side. How do you know why a company is going public? Is it so they can get more capital into the business so they can continue to expand? Or is it because they are simply trying to cash out at the public’s expense?
IPOs are usually seen as (or made to look like) a great way to make windfall gains in a short period of time. The steps are very simple:
- Buy stocks in an IPO.
- Wait for the listing day.
- Those who missed the IPO would rush to get their hands on the “hottest stock” in the market.
- You sell your holding to them on the day of listing and make windfall gains. Simple, right?
Firstly,there is always a conflict of interest between sellers of IPO, and buyers of an IPO.
An investor make profit when it buys stock at cheaper valuation and sell when valuations are fair or expensive.
On the other hand, when a company comes with an IPO, it wants highest valuation for the IPO so that they are able to raise maximum capital for the shares issued.
So there is a clear conflict of interest between the IPO issuers and subscribers.
If the issuer sells the IPO at highest valuation, it will be a great disadvantage for a buyer. Since issuers have the pricing power during the IPO, there is no way a subscriber can negotiate (the only way is to let the company get listed and wait for the prices to decline till they reach reasonable valuations)
Secondly. Company owners have much better insight of the real valuation, as they are the insiders, and they can manipulate the numbers and draft the prospectus to paint a rosy picture about the company.
On the other hand, since a subscriber has little to almost no information about the company’s real valuation, he has no other way but to rely on the prospectus, and financial statements of the company which are mostly window dressed. This again puts subscribers at real disadvantage, which means the game is already rigged in favor of issuers.
Finally, IPOs are never bought, they are always sold. and most of them take advantage of the market sentiment and time their issues when positive sentiments in the market are at its peak and people are willing to buy anything for any price, expecting to make windfall gains, without looking at the valuations.
No wonder why you will find a plethora of IPOs in a bull market and fewer in a bear market."
You may read the original article here: https://gandakohpersonaltrading.home.blog/2019/12/06/ipos-dirty-little-secret/
I've been trapped and was able to get out at three instances participating in an IPO.
First was AXLM, I bought an IPO, the price plummeted during the listing day, able to exit at a minimal loss. My emotions kicked in, re-entry at a lower price but then again it plummeted at a lower price and so ipit for how many days, till I cut my losses. Then the price went south again.
The second was HOME. So far, I'm good, no big losses at this time but the hovered within the IPO price. Time-wise! I can say naipit pa din.
Third was FRUIT. I did not buy at IPO price. No plans for buying really. But saw the price rose to the skies during noon market break. Greed kicked in, bought at a high price, unable to get out immediately. I cut my losses too far south. Revenge trade bought again at a lower price, but then again the price dived down south. So, ipit till now.
With the above Ms. Ganda Koh's article, I think it's clear. I just outright avoid IPO from now on.
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