If you aren’t part of the investment world, you probably have never heard of an IPO. Let me tell you what would probably be the most famous and successful IPO of the last couple of decades: Google!
Before we talk about Google, let’s look at what an IPO is. Aren’t babies cute? There are very few babies that don’t put a smile on our face. Puppies, kittens, bears, fish, and of course, people. Everything they do is cute. An IPO, or Initial Public Offering is the first offering of stock to the public. Often, young, small companies issue IPOs as a way to raise money for expansion.
If you thought buying a house was a sea of paperwork, try putting your company’s stock for sale. Because of this, companies often get the help of an underwriting firm. Often this firm gets the rights to give a certain amount of stock to other investment firms to issue to whomever they would like.
IPOs are very risky because especially at the beginning the price can be very volatile. In fact, it’s often difficult for individual investors to get shares of an IPO since investment firms often offer the IPO to their richest clients.
If you are interested in an IPO, first look at who is underwriting it. Contact the company and ask them about your chances of getting some shares. You may have to open an account with them in order to do it. If you can’t, be patient and see where the stock price goes. Most of the time, the IPO is underpriced to make it attractive.
Let’s talk about Google. If you bought shares at the intial offering in 2004, you paid $85 per share. If you held on to those shares until 2007 and sold on October 31, you sold for $700 per share! Not a bad deal!
Not all IPOs are that successful so be careful. By the way, another IPO you may know of is Visa who went public in 2008.
Keep an eye on IPOs. They can make you some major money!