Friday, June 12, 2015

IPO sure Huat Ah?

With the performance of Singapore O&G's recent IPO, I think many retail investors are getting swooned by the allure of IPOs.


From an IPO price of $0.25, IPO investors would be up almost 200% at today's closing price!

So easy to make money right? Why work damit, just be a Chinese farmer / stock trader!

Well, look at the post-IPO performance of these 2 stocks...


Pacific Radiance started trading in November 2013 and it's IPO price was $0.90. It went up to a high of $1.51 in late 2014, but prices have been one a 1 way road down since then. Today's close of $0.54 is a 40% loss of IPO investors.

POSH, a related company, started trading in early 2014 and it's IPO price was $1.15. The highest it went to was $1.165 a few days later, and it has just sank like a... ship since then. At today's closing price of $0.445, this represents a whopping 61% loss for IPO investors.

Of course, many will be quick to point out that the industry that Pacific Radiance and POSH suddenly turned sour, so the macro factors are affecting the company. That's probably a large factor for its poor price performance. However, couldn't that happen to any stock, IPO or not?

Just because a stock is going for IPO doesn't mean that it will be awesome like O&G. Macro factors and valuations still matter, regardless who is the CEO and what products the company sells. Too many people fall in love with the narrative and buy stocks with both hands and both feet.

I think the best way to think about an IPO is from the perspective of the existing shareholders of the company. All I think about is how the original shareholders are passing on the bag to the new IPO shareholders. If it's such a great stock, why would they be selling their stake? The use of the IPO money should be extremely compelling, rather than a "meh" business idea. That's just my opinion anyway.

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