“Apply for every IPO, they’re sure winners!”
IPOs (initial public offerings) are announced whenever a private unlisted company applies to the stock exchange to get listed. The owners of this company give up a portion of the company in order to get capital.
Whenever an IPO is announced, many retail players get into a fluster. After all, they're bound to profit when the price jumps up on the first day, right?
Not necessarily.
Investment banks often put a slightly-below-than-market value to the listing price in order to generate interest. What CEO won't be happy to hear that his company's shares are 100 times oversubscribed? Does it mean that the company would be getting less than it would?
Maybe, but then again for the investment bank, it stands at a lesser risk of needing to fulfil their underwriter obligations.
Sometimes, they get their pricing wrong (or right, if you want to raise the most fund) and those caught bidding above the fair value get slaughtered. Other factors that drive the prices down include market sentiment, irrational investors or undisclosed bad news (Ideal Jacobs [0162], I'm looking at you).
While some companies like Petronas Chemicals (5183) continued to grow and grow, other companies like M-Clean (0167) dropped from the get-go.
Lesson to be learnt here is this: don't buy the IPO if you wouldn't have bought it if it wasn't.
I've always wondered what happened to Sarah Tan after she got married years back. She was the only reason I tuned in to Channel V.
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