Initial Public Offering  

An initial public offering is a way to make a lot of money on the stock market, if you are lucky.  Of course, with all things in a capitalist system, it involves financial risk, meaning you can also lose a lot of money if you’re not lucky or smart.  Business is the foundation of capitalism, and the stock market is the vehicle that drives public investment in business.

The stock market is how anyone with a little cash can enter the investment world and participate in business growth and financial gain (or loss, if the business doesn’t do well).  Invention and innovation are the driving forces of new businesses, and therefore the foundation of capitalism.  If you as an investor want to be part of this exciting financial world, you need to learn about the initial public offering.

An initial public offering is when a business goes public and decides to sell its shares on the stock market.  It’s the debut on the stock market, and it presents some very exciting opportunities for investors who believe in the company.  There are two types of companies that go public and have an initial public offering: new companies and companies that have been around for a while but have always been private and therefore not traded on the stock market.

Since new businesses are often not well known, anyone who does their homework can uncover opportunities that others might not know about, and make money after that company’s initial public offering.  This is called doing IPO research.  By finding out ahead of time what companies have filed to go public and then looking into their financials and general state of business health, an investor can decide whether to participate in the initial public offering.

The obstacles to this are

1. private companies are not required by law to disclose their financial records so it’s kind of difficult to look into their books and find out whether they are financially strong and worthy of investment.
2. even if you can look at the financial accounts of a company, it is still a gamble as to whether the initial public offering will be a success.
3. there are thousands of companies to analyze, so it’s a lot of work to uncover which ones will make you some money at the initial public offering.

Another factor making it hard to research initial public offerings is the fact that certain rules put out by the SEC prevent investment banks from issuing any research about a company after it goes public.  This prohibition is only temporary, but it makes it hard to research a company that has just had its initial public offering.  Sometimes investors make money on day two or shortly after the initial public offering of a company.  You don’t have to invest the very first day to make money.

Investors can monitor the IPO calendar themselves and do the research on upcoming IPOs if they have the skills.  Alternatively, there are financial companies that will help investors with initial public offerings, for a fee.  The company will offer expert research on upcoming IPOs and provide help the investor identify the good deals amidst thousands of initial public offerings.