| The stock market plays host to many IPOs every year. In fact, it averaged 195.3 IPOs per year from 1999-2019. Recently, however, that number has increased dramatically. In 2020, we witness 407 IPOs—that's more than double 2019 stats and the highest since 2000 at 429 offerings. But get this: 2021 has already notched over 700 IPOs—an all-time record. This number will undoubtedly continue to climb higher as many more companies remain on the docket through Q4. Number of IPOs in the US from 1999 to 2020 
Source: Statista 2021 What's the rush? We all know the market is a cyclical, emotional being that's heavily reliant on sentiment and external perturbations, and this shows itself again within our recent IPO boom. Individual investors, or, "retail" traders as we call them, have been entering the market in swaths over the last couple years. With over 10 million new individual accounts opened by June of 2021, a figure that exceeded last year's total, it's clear that retail's desire for investing is far from satiated, and the trend continues. That being said, companies take note of this. Market performance comes and goes, but market participation is an attractive, and often a more consistent indicator that draws in businesses that may have been contemplating an IPO. So, retail influences the markets in more ways than just meme stocks. Should we get involved? Whether or not an IPO is a good investment for you is a very subjective matter and highly dependent on your strategy and desired outcome. That being said, with so many contestants in the race this year, it's tempting to lay a bet on one or two horses every now and then. So, here's what you should consider first: - Offer price vs. opening price: The price an IPO is offered at versus what it begins trading at are two different things. The number of investors who are able to get in at the offer price is very slim, and it's usually limited to institutional investors. As an individual, you're likely going to be reliant on the opening price at market open. Historically speaking, this significantly limits your upside, with the average IPO price increasing just 1.3% intraday.
- Day one vs. the long-term: It's not uncommon to see a lot of volatility on the first day of trading, especially with highly anticipated IPOs shrouded in fanfare. This inevitably results in some big pops and some big drops, but this isn't indicative of the long-term ROI. CNBC found that most 6-month gains were negligible.
- So, it depends on your goal: If your only prerogative is to get in early and get out as soon as you've notched a 10% jump, investing in IPOs might be for you. Just beware of the Pattern Day Trader (PDT) rule. Alternatively, if you just want to set and forget it, you should ensure the business is one you fundamentally believe in for the long term.
| 
No comments:
Post a Comment