Sunday, October 28, 2012

Not all IPO you can make the money!

 Recently received few query about Astro IPO (initial public offering) many seem not understand why Astro share price could fall below IPO price (something similar to Face Book IPO). In fact, no one can guarantee that IPO will always make money. Someone also make a joke, IPO seem equal to “It's Probably Over-Valued”.

Why so many people chase for IPO? In fact, strike IPO is similar to strike a lottery, you wouldn't know how much going to make. However, base of past record, many IPOs were actually very successful, hence investors could make quick easy money. That's why there's always interest in IPO.

In fact, for those company who opt to raise fund through IPO, there are a set of stringent guidelines that the company must follow. The Securities Commission (SC) is the body responsible to monitor the public listed company follow the rules and guidelines. Usually, there's one document call “Prospectus” the company need to issue and if you read carefully, they have listed all the possibly event that could go wrong with listing, including risk for IPO investors. (so that you could't blame them, they already told you the fact!)

Investment Banks are the one who handle the initial distribution of shares during IPO. They will try to sell shares to local and regional investors. That's why they need to create story to tell the public, usually telling all the good points (if not, who is going to buy the shares?) and make the story look good and feel good. If the investors believe their story, then the stocks coming out and being bid up multiple times, they call it over subscribe, the news will be published on major news paper. (to show off that the shares sales like hot cake) The Investment will make millions of profit for every successful IPO.

Once the shares listed on the market, supply and demand for the stocks will drives the price up and down. For Astro's case, though the shares were over subscribed, it's not indicator that the price would not fall below the IPO price. (I told my clients to sell the Astro shares on first day of listing, as later there always a chance to buy cheap)

After the event, many scratch their head,Who are those selling Astro shares? (you may click on the link to view the details of Star Article) Those experience know the stock price is driven by supply and demand, also the buyer can become seller if the trend change, see the below story.

Eddie, is a Fund Manager who subscribed the Astro shares. On first day of listing, his plan was to push the stock price go little bit higher (so can clear holding at higher price, remember the purpose of the Fund is to make money), however the selling pressure was so huge, after several attempt, the stock price seem to go south every hour. (he did contact other fund managers as well to understand their view) At last, the team respect the trend, so they changed the plan and decided to sell first then buy later... in the end, Eddie may still holding Astro stocks later, but they already “squeeze” some money out from the market, compare with those who still hold the loosing stock from the IPO.

Next time, if you want to play the IPO stock, try to guess when to buy and when to sell. Unless you are long term investors (must also consider if the stock suitable for long term or not), else think as if you strike lottery, how big or small amount doesn't matter. Most important is when you look back, don't regret if never take any action! This is one of the most important lesson if you were to consider IPO shares in the future.

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