Why sucessfull investors don't invest in IPO? | Ipo (initial public offering)| What is going public ?

WHAT IS GOING PUBLIC  ?

In simple words, going public means the ownership of company is changing from private to public.Going public refers to private companies getting listed on stock exchange through a process called IPO. 

WHAT IS IPO 

IPO is known as initial public offering. As the name suggest,it is the first stage when a company offers it's shares to public. When a company wants to raise funds in order to expand it's operations, it may choose by offering stocks/shares to public.Initial Public Offering (IPO) is the first step for becoming a publicly traded company.

MORE ABOUT IPO

IPO is like wholesale shop and the shares are available only in large quantity. The available quantity is known as market lot. IPO last for minimum 3 and maximum 10 working days.After approximately 12 days of closing of the IPO company gets listed on stock exchange.The company gets listed so that anyone can buy,sell and trade shares through a regulated and authorised channel. 

Recently, IRCTC(INDIAN RAILWAY CATERING AND TOURISM CORPORATION) and SBI card launched it's IPO that lasted for 3 days. IRCTC IPO was launched at a price of 315 to 320 rupees per share and market lot was of 40 shares.

By IPO, businesses get a debt free fund for expansion and growth in return for stakes in the company. Stock owners get dividends when company makes profit and can sell their stocks when prices are high. Owners,venture capitalist,investors use going public as an exiting strategy of their investment in the business.

EXAMPLE 

159 companies went public in the year 2019. Some of the successful IPOs are IndiaMART intermesh Limited (indiamart), Avenue supermarts Limited (D mart), Affle india, IRCTC etc. 

--) Indiamart issue price was 970-973 rupees per share with a lot size of 15 shares. The stock is currently trading at 2190 with an increase of 125%.

--) Dmart issue price was 295-299 rupees per share with a lot size of 50 shares.This stock is currently trading at 2305 with a gain of 638%.

--) Affle India issue price was 740-745 with a lot size of 20 share.This stock is currently trading at 1450 with a gain of 95.9%.

--) IRCTC issue price was 315-320 rupees per share with a lot size of 40 share.This stock is currently trading at (1902-1305) with a highest gain of 494%.

SHOULD WE INVEST IN IPO OR NOT ?

Advantages of investing in an IPO :

--) Shares are available at the cheapest rate in an IPO. After listing, if the company makes loss than it may not satisfy the above conditions.They might even trade at lower prices then their IPO. For example Uber and Lyft (ride sharing companies like ola)are trading below there IPO prices.

--) By IPO, investors get a chance to invest in unlisted companies at a good price. It gives chance to enter in good quality public sector undertaking (PSU) companies also.

Disadvantages of investing in an IPO:

--) In an IPO investor's have very less information on company's financials. Insiders, company officials and employees have a good knowledge of the sales and revenue generated but investor does not gets a chance in the case of IPO.

BAZAARWALLA'S THOUGHTS :

According to bazaarwalla, a Wise investor should not invest in IPO. Lack of information on company's financials makes it difficult to understand whether that buy is good or not. IPO investment seems like speculation or a gamble game where one doesn't knows the financials but ready to invest just by observing the returns of other successful IPOs.IPO is a very high risk-reward game and wise investor is one who minimizes risk and maximizes gain. Investing in IPO is not encouraged by World's most successful stock market investor Warren Buffett.