Why One Should Not Invest In An IPO

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 A lot of people debate about investing in IPOs. As a man, who is married to the school of behavioral finance, here are some reasons, why one can consider not investing in IPOs at all:


1. The company, that is looking to gather money from the market, has not got any track record to show, in terms of annual reports. All the information, that is available to the public, is only the disclosure by the company in the red herring prospectus. So, taking a call on its strategic business model is not going to be easy.

Compared to that, there are hundreds of listed companies to choose from, with large amount of information available in the public domain. So, generally, it is a good idea to invest in a company by making an "informed choice", rather than trusting the self disclosures under red herring prospectus and the premium rate of the grey market. It is too risky to invest your hard earned money in that type of firm.

2. Some people argue that it is about making quick bucks by booking profit, when the share is listed. Listing gains is what attracts a lot of people. But, one danger is, that, it may lead to gambling instincts in you in long run. It may make you habitual to try and make quick money in the market. This behavioural change may not be good for your finances in the long run.

3. It is about herd mentality: If you want to invest in the market, you can invest through mutual funds or buy many other already listed companies. But, many people jump into it as they feel "left out" as many others are applying for IPO. Remember, investment in anything should only be done, based on your financial goals, risk taking capacity etc.

So, here are my reasons not to apply for IPOs at all. #business #people #finance #investment #school #pv_diaries

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