Facebook, Blue Apron, Pinterest, Lyft and Uber – what do they have in common? All of these companies made their stock available to investors in Initial Public Offerings, or IPOs. What is an IPO and should we invest in one? Certified Financial Planner Paul Fain provides the answers this week on Sunday Money.
PAUL, LET’S START WITH WHAT IS AN IPO?
An initial public offering, or IPO, is the very first sale of stock issued by a company to the public. Prior to an IPO the company is considered private, with a relatively small number of shareholders made up primarily of early investors (founders, their families, friends, venture capitalists or angel investors. There were 190 IPOs in 2018.
WHY HAVE AN IPO?
- Grow and Expand: Going public raises a great deal of money for the company in order for it to grow and expand.
- Liquidity: A public company trades on a stock market. Trading in the open markets means liquidity for a shareholder of a private company.
ARE IPOs A GOOD INVESTMENT?
IPOs tend to be:
- Early stage companies.
- Higher risk.
- Limited Shares.
- Buyer Beware: Don’t buy a stock only because it’s an IPO, do it because it’s a good investment and because you believe in the company’s future.
FAST MARKET FACT: Recent IPO Performance
- Pinterest: up 44% (lost $63 million last year)
- Lyft: down 28% (lost $911 million last year)
- Zoom: up 120% (profit $270 million last year)
QUESTION FOR OUR MONEYMAN?
Send them to Paul@assetplanningcorp.com!
You can also reach Paul by using the contact page on APC’s website.