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initial public offerings

Initial public offerings (IPOs) occur when companies first sell their shares to the public. Subsequent sales of shares are called seasoned equity offerings (SEOs).

IPOs have gained a lot of attention in the press and among investors due to a common phenomenon called IPO underpricing.

This occurs when the shares of company are traded higher during the first day of public trading than they were sold prior to the first day trading in the IPO process.

It also happens that the first trading day price may be lower than the price the issue was sold to investors prior to the first trading day.

Because of the observed underpricings, investing in shares in initial public offerings is very popular.

However, underwriters in IPOs have a lot of latitude in allocating shares in the IPO process and the SEC does not regulate the business decision of how IPO shares are allocated.

Initial Public Offerings - Resources

Consulting your broker or investment advisor is one of the first good sources to begin investing in IPOs.

Although the share allocation process depends very much on the participating underwriters, there is a chance that a broker can get you shares in an IPO.

Not all IPOs are worth investing into.

You should approach IPO investing in similar ways you would approach investing in a company already traded in the stock exchange.

This approach includes valuing the company and comparing that value to the price the shares in an IPO are sold at.

What makes this valuation difficult is that many IPO companies may have very little in terms of operating history.

To find out about which companies are coming to the marketplace with an IPO, there are several resources out there that can help you.

These resources include: