What's an IPO?
IPO stands for Initial Public Offering, it signifies the first time a private company is offered for sale and listing on the public share markets, like the ASX (Australian Stock Exchange).
This may not be the only time shares are offered to the public, but it will be the first time.
Why Invest in IPOs?
All investors like to find the next big thing and investing in IPOs can often present this chance.
Companies that IPO are typically fast growing, innovative companies that are looking for additional funds (from IPO investors) to take their businesses to the next level.
Most importantly, IPOs as a group, consistently outperform the All Ords and gains can be much higher if you back a winner.
What sort of returns can I expect?
That depends on a number of factors and timing is critical. The ASX has some excellent charts that show basic returns for all IPOs listed between 2005 and 2015, you'll note some interesting trends here.
I think most of us would like to see those sorts of gains on our investments, but there's more to it than that.
Take a look at the following.
PE stands for Private Equity and it's common to find an IPO being managed by a Private Equity firm. Historically, gains on these IPOs have had significant uplift in instances where the firm has retained a 25% or greater stake in the company itself. This could be for a number of reasons, confidence, close ties to management, mandatory lock in periods for share trading of those investors, or simply smart investing.
What it tells us is there is a lot of money to be made on select IPOs if you get the timing right and there are ways to improve your chances on that front.
OnMarket goes into more detail about their specific listings here, these only represent the IPOs available via OnMarket, which tend to be the easiest for retail investors to access. The short version? 53% in the last 4yrs, yes 53%!
You can sign up to OnMarket and get bidding here.
Which IPOs are a good investment?
The million dollar question! Like any investment, you will need to accept an element of risk, but we do believe there's a system to increasing your chances and will be looking to offer tools and insight to help investors make more informed decisions.
For now, head on over to the ASX and have a read through one of their excellent articles on the topic, you'll note we've referenced the images from that article above.
Until recent years, IPOs were a little difficult to access. Your broker needed to have access to the offering or you had to wade through pages and pages of each prospectus to find the cost and minimum buy in before submitting a form and waiting to find out if you were successful. No thanks.
You can still use those methods, and in some cases you have no choice, but increasingly IPOs are being offered to retail investors and OnMarket is leading the way in giving access to these listings.
We're also looking at ways to streamline the process for IPOs not available via OnMarket, more on that to come.
How do I Invest?
OnMarket is online platform that allows retail investors to access IPOs and also participate in Crowd Funding.
You can't get to all IPOs this way, but as OnMarket becomes more popular, the number of IPOs available is steadily increasing.
The bid process is quick and easy and signup is free, so head on over and sign up for an account with OnMarket to get started.
The two most popular share trading platforms currently are Bell Direct and CMC Markets.
Each has their pros and cons and you should review the fee structure vs your expected trading patterns to see which is a better fit for you.
We've got accounts with both for this reason and given sign up is free, there's no reason not to take a closer look at each from the inside before transferring over your investment dollars.
Currently, CMC has the better mobile app and better integration with IPOs, but it also requires you to sign up for a new bank account to move your funds around.
Some argue that Bell Direct provides better taxation reporting, which may be an important consideration depending on your trade frequency, and it also allows you to use any account you like to deposit and withdraw funds to the platform.
Which share trading platform should I use?
What are ETFs?
ETFs are essentially bundles of securities that can be spread across markets, sectors, commodities or even entire Index's. This allows investors to hedge their bets in such a way as to offset loses in one share with gains in another, gain or reduce exposure to currency fluctuations and foreign markets, reduce the cost and time involved in trading shares, or to simply help balance out a portfolio.
ETFs are a great way for investors to spread their dollars further and can be an excellent starting point for new comers to the market for a number of reasons. Whilst we hold shares in various ETFs we're not experts, but for more information on how to get started and to pick the best ETFs, we recommend a visit to ETF Watch.
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