IPOs explained
There will be times when you will read on newspapers and hear the news that a company is being positioned for an IPO. But what is an IPO and why this is a big news for most investors. Simply put when you hear these three letters, always think that the company is trying to open it up to the public. This is the time when Company A decides to sell its stock to the public. By experience when a company undergoes an IPO, that will be usually associated with huge first day gains, and there will be times as well when the move flops big time when the market becomes unreceptive.
In cases that involve IPOs, often the individual rarely realizes the huge gains because it is the institutional investors who have the first access to the stock of the company at offering prices. And by the time the general investor and the buying public trade the stock, most of the so-called first day gains have already been made and maximized. But that can be reversed of course given that the informed investor can move fast. A company is often offered in the market for various reasons. But some of the more popular and main reasons for an IPO include the need of the company to raise additional capital, to take on debt and to sell partial ownership. The company that you know may be engaged in IPO when it decides to sell some ownership of the company to the public. Though this company can issue debt securities, a company decides to go for IPO for many reasons. Perhaps the main reason is that the money that can be raised in an IPO need not be repaid while those that can be raised thru debt securities must be repaid with interest.
