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Share buying: riding the IPO wave
May 30, 2014 | By:

This is the best year for new stock offerings since the tech bubble. Brenda Kelly, chief market strategist at UK broker IG, tells us how to know if any upcoming IPOs are worth investing in

Share buying advice-620 Corbis1. Do your homework

When considering investing in an IPO it is important to evaluate a company’s stock for yourself, rather than relying on the thoughts of a single analyst, broker or media commentator. Making a successful IPO investment requires a self-confidence that can only be acquired from a combination of primary and secondary research.

2. Know your market

Today the US markets are in full swing with a number of heavy hitting US companies like Facebook, Apple and Google all announcing their quarterly results, something that has made open hours trading increasingly important. Whether investing in a company before its quarterly results or a major IPO, the location of that market must be carefully considered so that you have as much trading access as possible.

3. Look to the crowd

Grey markets are becoming increasingly popular, allowing investors to trade shares in a company in advance of its official IPO opening day. Grey markets we ran last year on both the Royal Mail and Twitter IPOs were more accurate in predicting prices than bankers and their advisers and they certainly provide another interesting, different perspective to add to the research mix.

 4. Don’t believe the hype

Huge levels of attention naturally follow certain IPOs and often this media hype is unjustified – as a lot of smaller Facebook IPO investors quickly learnt on the first day of public trading. Getting caught up in the excitement of an IPO is natural but it is always important to be mindful of the risk.

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5. Define your strategy

Your investment goals and strategy will ultimately define whether you should invest in an IPO for short-term or long-term gains. It is worth noting that widespread market optimism often helps to create short-term opportunities for investors, and by their very nature IPOs often encourage a short-term perspective. It is, however, important to consider the longer-term future of a company when deciding on how long to hold on to stock. 

6. Look beyond the company itself

You may be 100 per cent certain that the company you are investing in is the right one for you, but it is important to assess the wider market happenings too. Is the market growing or shrinking? How are competitors faring? What if those rumours about a rival company deciding to IPO at exactly the same time are true? These are just a handful of some of the questions that should be considered.

7. Ride the wave

The most successful IPOs are those made on the crest of the wave. Twitter, for example, went public at a time when social media stocks were peaking. In a similar vein, Alibaba is today moving ever closer to what could be the biggest IPO of all time.