I am sure we are all familiar with the concept of trading, or buying and selling, stocks and shares but have you ever wondered where those shares came from, how do new companies join the stock market and issue shares? And whether you could you participate? There are various ways in which a company can issue shares to join or list on a stock exchange. The method that a company chooses may well determine whether you can get involved in that process, as a retail investor/trader.
Where can you invest in IPOs, New Issues & Placings
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How do you invest in new issues, placings and IPOs?
Once you have established if the risks of IPOs, placings and new issues are for you. Your next question is probably "how can a retail investor/trader invest in them?"
Firstly, you will need to have the right stockbroker one that allows its clients to participate in the new issue’s markets in the widest sense
To that end, you will need to have a conversation with your stockbroker about this.
You will need to discover if they offer these services and if they do, are there any restrictions in terms of suitability that you need to meet? Such as client classification or net worth.
If your broker does offer new issues and you meet the criteria you will also need to have liquidity at hand. When you apply for new issues, you typically apply for a fixed number of shares at a set price (the issue price) and you will need to have the funds available, on-demand, to pay for those newly issued shares.
It’s worth bearing in mind that new issues crop up regularly and that if all your money is tied up in one issue, you run the risk of missing out on others. That may be ok if you are cherry-picking, but Stags as those who trade in new issues are known, often try to participate in as many new issues as possible to try and spread their risk and diversify their returns.
What is an IPO (Initial Public Offering)?
The IPO or Initial Public Offering is among the methods through which companies can list on a stock exchange. Under an IPO an existing, but privately held company offers shares in the business, to investors, usually to both institutions and retail investors.
Typically, the company issues new shares in its IPO and this process is underwritten by banks and brokers who for a fee guarantee to get the issue of new shares away at a minimum price
As part of this process, the underwriting banks and brokers will usually roadshow the business looking to IPO, to their institutional clients and sound out their appetite for investment in the new issue.
Working with the business and its advisors the underwriting banks decide on key items such as the valuation, the number of and type of new shares to be issued etc. They prepare formal offer documents and they may also advise the company on issues such as the timing of the IPO and which jurisdiction or stock exchange it should take place in. In recent years stock exchanges have competed aggressively with each other to attract the largest IPOs.
Once these key factors have been decided then an IPO filing is made and offering documents are published. It’s at this stage that investors, both retail and institutional, can apply for the new shares in the company. The IPO price can vary subject to demand, though the underwriting and issuing banks will usually have indicated a price range, within which, the new issue will likely come to the market. In popular IPOs investors tend to apply for more stock than they actually want in expectation of their allocation being scaled back in the final issue, the more demand there is for the new shares then the higher the IPO price is likely to be.
That said the underwriters often like IPOs to go with a” bang or a pop” meaning that demand for the new shares is such, that there is a significant aftermarket demand, or to put that simply, that investors who were scaled back or who may not have been allocated any shares in the IPO buy those shares in the secondary market, once they are quoted on the stock exchange. It’s not uncommon for shares of companies that have just IPO’ed to trade well above the IPO price in the after or secondary market in these circumstances.
What are New Issues?
IPO’s are a form of new issue but more often than not these days the term IPO refers to the floatation of a large ongoing concern such as a tech unicorn or state-owned business etc
When smaller companies come to list or float on the stock exchange, they are referred to as being a new issue. This is particularly true of the UK, the phrase IPO being an Americanism.
The term new issue can also be used to describe an issuance of shares or debt/bonds from an existing and listed business, for example, a company whose ordinary shares are listed on the stock exchange may make a new issue of convertible bonds to raise additional working capital for a project or expansion.
But whether the new issue is from a business listing for the first time or an issue of new paper from a company that’s already listed, the process is very similar to that of the IPO, but on a smaller scale. The issue will typically be underwritten, permission to list the new securities is sought from the exchange and offer documents are prepared. The underwriters and their associates will gauge demand and applications for the new shares or bonds are invited from investors and the new issue is listed on the exchange.
What are stock Placings?
Placings are another way in which companies which are not currently listed can gain access to stock markets and the investors on them.
Placings are often used by companies who do not necessarily need to raise money, or if they do, they wish to have only a select number of new institutional shareholders
Placings are typically organised by the company’s brokers/bankers who approach institutional investors and invite them to participate in the placing, setting out the terms of the proposed issue and the nature of the business that they will be investing in. In this type of issue, there is usually little or no opportunity for retail investors to participate.
That said the placing is proving popular among listed smaller companies looking to raise additional capital
Often the company will issue new shares at a discount to the current share price.
Depending on the size of the issue and the demand for the shares these placings may take place through just one or two brokers, though in larger issues there may be a bigger underwriting group. In theory, there should be an opportunity for retail investors to participate in these secondary placings, though they are often be conducted on a first-come-first-served basis. So, whether you hear about them before they‘re completed may depend on your broker and their connections.
Are new issues, IPOs and placings right for retail investors?
They are certainly not for everyone There are no guarantees that the listing price of new issues, however they are bought to market, will be higher than the issuing price.
If the share price of the new issue in the secondary market falls below the issued price, then you will have a running loss on your investment. You then have a decision to make, as to whether you should sell the shares and take that loss, or hold on, in the hopes that the price will recover above the issue price in future.
New issues are by nature speculative, investors are putting money into businesses which may have little or no track record, valuations for which are often driven by sentiment and can prove to be fragile. If for example, the recently floated company experiences a downturn in its markets, loses a large order or suffers some other form of disappointment.
What sort of returns can you expect from investing in new issues, placings and IPOs?
This a very difficult question to answer definitively because the results will depend on many variables, such as the issues you apply for and participated in, your approach to trading the issues, that is whether you sell the new issue on the first day of trading regardless. Or whether you tuck them away for a few weeks’ months or even longer.
As the FT pointed out in an article in May 2019 (written in the wake the disappointing IPO of ride-sharing app UBER) the price of Facebook moved very little in its early trading after it IPO’ed back in 2012, but its share price has risen multiple times in value over the last seven years.
A long-term study of US IPOs, using data from 1980 through to 2016, conducted by Professor Jay Ritter of the University of Florida, found that the average return from among more than 8,500 US IPO’s was +17.90%, based on their first day of trading, and some +21.90% over a three-year holding period.
Those returns, of course, are based on the idea that an investor participated in each one of the new issues and using averages can, of course, mask a wide range of underlying individual outcomes
What are the risks of IPOs, New Issues & Placings?
As we noted above stagging or investing solely in new issues is a speculative business that is often driven by sentiment. There are no guarantees that listing prices will be higher than the valuation at which the new issue is priced. So, there is a genuine risk of loss.
Judging whether a new issue is competitively priced and why the present owners of the business are selling is definitely a skill, getting that judgement wrong can be expensive.
Information about why a company is having a secondary placing may be limited and traders and investors may need to make decisions quickly, rather than deliberating at leisure.
What are the main benefits ofIPOs, New Issues & Placings?
New issues are a regular stream of potential new investment opportunities, the investor’s money can be turned around quickly in the right circumstances, moving from issue to issue rather than being tied up in long term buy and hold strategies.
If you are building an investment portfolio, however, new issues can be a great way to get into an exciting business on the ground floor, at least as far as the stock market is concerned.
When can you sell out after a new issue, IPO or placing?
That rather depends on the individual issue, though there will normally be a minimum holding period. The purpose of the new issue is usually to raise fresh cash and create new shareholders for a company. The underwriters and other advisors to a new issue don’t like to see the new money they have raised, and the new shareholders they have created, immediately heading for the exit.
There may also be some practical issues that can delay the ability to sell a new issue, for example, you may need to be in possession of the newly issued shares before you can sell them. It’s best to check what these restrictions are before you invest in a new issue, on a case by case basis.
Where can you find out what companies are issuing an IPO, new issue or placing?
One way to keep tags on what new issues are coming is to track a calendar of upcoming issues such as this one from the London Stock Exchange. Reading the specialist financial press is also a good idea but the best method of gathering intelligence is to keep closely in touch with your stockbroker who should be well informed about what new issues are in the pipeline.
In today's discussion we cover:
- What’s the difference between a new issue, placing and IPO?
- Are new issues, IPOs and placings right for retail investors?
- What sort of returns can you expect from investing in new issues, placings and IPOs?
- What are the risks of IPOs, New Issues & Placings?
- What are the main benefits ofIPOs, New Issues & Placings?
- When can you sell out after a new issue, IPO or placing?
- Where can you find out what companies are issuing an IPO, new issue or placing?
- What PrimaryBid offers and how it works.
- Why investors should use PrimaryBid rather than going direct through their stockbroker
- What PrimaryBid will do differently compared to existing/closed new issue only platforms
- What about international markets, IPOs in the US, Europe and Asia new issue access.
- Will PrimaryBid cover unlisted securities? Providing a secondary market for equity crowdfunding and VC investments.
- Where are funds held prior to allocation and are they protected under the FSCS or segregated from the firms funds or other clients funds. If a full allocation is not alloted, are funds sent back?
Good morning. Welcome to Good Money Guide TV. We’re here with Kieran D’Silva from PrimaryBid. Today, we’re going to have a chat about new issues, IPOs and placings, who they’re suitable for, what Primary does to bring this market closer to retail investors, the main risks and benefits, and also, how you can get involved. So Kieran, welcome, thank you very much for joining us from PrimaryBid.
Thanks for having us.
So we’re going to have a quick chat about the new issue IPO market. And obviously, there’s new issues, IPOs and placings. Do you want to quickly talk us through the difference between those three terms?
Sure. So a new issue is when any listed company is using new shares to raise funds. That includes IPOs and placings. An IPO is when a private company lists in the stock exchange for the first time and a placing is when an already listed company is using new shares to raise new funds. Historically, placings are only available to institutional investors and high net worths.
So on the basis that traditionally, institutional investors get first dibs on these sorts of offers, are they suitable for retail investors? Should a private client be getting involved in the new issue and placing market, and I suppose what are the advantages to them of doing so?
Well new issues are often seen as the hottest deals in the market, and historically, have been the preserve of institutional investors, with retail investors being excluded. We view that retail investors can buy stocks and shares via a stockbroker at market price. So it is only right we’re able to buy those same shares at a better price in the primary market.
And what would you say are the main risks to a private client getting involved in this sort of market?
So as with investing in any stocks and shares in the stock market, the main risk is your share price performs badly after a transaction.
But there’s other things as well, aren’t there, like liquidity obviously if it’s an issue from a FTSE100 company, there’s going to be liquidity and volume within the market, but the further down you go, the harder the shares are to sell afterwards, aren’t they? So what’s the sort of risk? What sort of returns can they expect to make within what timeframe? And what should they be mindful of after they’ve bought in to a new issue?
So I think with any investing in stocks and shares, there’s no guaranteed returns. But however, there’s lots of academic studies showing that IPOs overall outperform the wider stock market, and stock placings are done at a discount to that market price. So [whereas they’re embedded, dealt] to an overall stock price performance.
So we’ve touched a bit on the risks but what about the benefits for someone who sees an attractive new issue? So on your platform, for example, you send out notifications saying company X, Y and Z is issuing new shares. Why should an investor buy through you rather than just going to the market and buying them themselves?
So the main benefit of a placing is its discount to market price. This is the first time anywhere where an everyday retail investor can get access to a listed company share at a discount to market price. If they buy via a stockbroker, that’s kind of secondary market; you’re just buying or selling at the share price. Via new issuance or the primary market, that’s when you can get this access to a discount to share price.
So why would a company issue shares at a discount?
So when a company’s looking to raise new funds, for example, BP is looking to raise new funds to drill a new oil well, they need to go and raise that from both institutional investors, historically, via an investment bank, and those institutional investors, it’s really similar to sort of a bulk buy discount. They’re investing huge amounts of money and therefore, they get that discount to the share price. And we’re simply allowing the retail investor access to that same discount.
And for a retail investor or a private client wanting to get involved in new issues and IPOs, where should they look? How do people find out about what companies are issuing new shares, and then how can they go about doing their due diligence on these companies to see whether or not they’re worth investing in?
So high net worth individuals often have access to these via the private client brokers, access to placings, and the large IPOs like Royal Mail, stockbrokers often distribute them to retail investors. PrimaryBid gives access to a much wider range of all placings, which we do for a platform, to all retail investors, not just high net worths. So the best way is to sign up to PrimaryBid and get a notification on all of our transactions.
So the transactions you offer, London Stock Exchange also publishes all the coming new issues and the most recent new issues as well. Do you cover any issues outside of what’s published on the London Stock Exchange website?
So generally, placings are only announced in market once a transaction goes live. There’s no advance warning essentially, in a way that an IPO, you often have some lead time when you know that deal’s coming to market. For a placing, the first time investors normally find out about it is when there’s a public press release and the transaction is live.
I was a stockbroker for a while, you know, a long time ago, and we did partake in a few new issues, and one of the things we found that was actually our private client base was almost like the last informed. You know, they were the last to know about them, and also, they got the smallest issue afterwards as well. And one of the things that we sort of found was that the more access retail clients have to a new issue, the less demand for it there is. So generally, if there’s a hot new issue that’s going to almost certainly increase in value when it comes to market, there’s an opportunity for institutions and high net worth clients to [stag] it, you know, buy it and sell out immediately. But we saw a sort of trend whereby new issues where institutions weren’t overly interested, it wasn’t oversubscribed. So there was a bit of an allocation left, and then that got put out to the stockbrokers and then that got put out to the retail customers. Do you see that sort of trend now or is there more demand for a private client, or is it still very much the case, and also, how do you deal with allocations? So if you’re involved in a new issue as well and there’s large institutional demand, how do you ensure that the private clients [on] your customers get a fair allocation and don’t get scaled back?
So I think this selection bias that you’re referring to has been a key issue historically with these transactions, whereby retail is often an afterthought by the investment bank running this transaction. And institutional investors get the hot deals and the retail investors are only getting an allocation where there’s funds still required. The key difference with PrimaryBid is that especially now we have the commercial agreements with London Stock Exchange and Euronext, the leading Pan-European stock exchange, we’re meeting the listed company at the start of the fundraise process. So when the company’s thinking of raising funds, retail is not an afterthought. They’re thinking about them upfront. And PrimaryBid are engaging directly with the listed company so that there’s no notion of getting zero doubt towards the end, if it’s a hot deal.
And to your question on allocation, we’ll generally engage with the listed company and they’ll have an idea of how much they want to allocate to retail upfront, and we’ll agree these allocation policies upfront. So as an example, if the book is two times oversubscribed and the investment bank may choose to allocate more to its long [only] investment funds and less to its more hedge fund clients, and that’s fine – the bank has authority to do that as it thinks it best makes up the book – however, if it’s two times oversubscribed, PrimaryBid would expect to get 50% of its allocation on that transaction, as opposed to being zero doubt. And that’s because of the relationship directly with the issuer.
And I suppose essentially, you’re pooling a lot of private clients’ orders, whereas before, it perhaps would’ve been ten different stockbrokers applying on behalf of 200 customers.
Are you essentially saying that you’re an institutional applicant as well, and then filtering that out to…?
Exactly. PrimaryBid automates that aggregation of retail demand and we face off to the issuer or the bank as one FC-registered institutional counterparty.
So that’s what you do. Let’s just sort of quickly touch on how you do it. So I want to get involved in a new issue. I open an account with you, and then company X, Y, Z is issuing shares and I go yeah, I’ll have, for the sake of argument, I’ll have £10,000 worth of that. What’s the process? Who looks after my money? Who looks after the shares? What happens after the shares, after the transaction’s done? When can I sell them? Let’s just talk about costs as well, what are the costs?
So at very high level, PrimaryBid connects everyday retail investors to listed companies raising capital. And we do that when a transaction is announced. The PrimaryBid user will get a real-time notification, so they can learn about the transaction, they can subscribe for an allocation, and they can receive those shares commission-free. In terms of costs, we don’t charge…
Shall we just touch on that. I mean IPOs and new issues are generally commission-free, aren’t they? It’s the issuer that pays the institutions for raising the money, so generally, private clients wouldn’t have to pay commission on a new issue or a transaction.
It really depends on their private client broker. For access to these hot deals, sometimes commission is charged, while PrimaryBid does not charge the retail investor any commission. Where we get our fees from is we charge the listed company a fee for raising the capital.
And then the process, where do I send, so I want £10,000 worth; do I send my money to you or does that sit in my stockbrokerage account and do I need a stockbrokerage account as well?
So when you transact through PrimaryBid, you pay then and there via your debit card. That sits in a segregated client funds account.
So that’s pre-allocation.
Pre-allocation. A segregated client funds account at Barclays, so there’s no credit risk with PrimaryBid. And once you receive your allocation, you can settle into your stockbroking account of choice. So whether that’s Interactive Investors, Barclays, Hargreaves Lansdown, you choose. And if you don’t receive your full allocation, you’ll receive a refund of your balance.
So when should that show in my stockbrokerage account? So say these new shares issue at nine o’clock when the market opens on Monday, when will I see them in my stockbrokerage account and when will I know my allocation and when can I either sell them or know my position?
So once of the fundraiser are announced, then we’ll send out allocation confirmations to all the investors. Normally, it’s three days after the results of the fundraise announcement, when the shares are admitted to trading, and at that point, they can start to be settled into the underlying retail investor/stockbroking account. In terms of exact timing, it really depends on the stockbroker and their processes. For many of our stockbroker partners, they’re settling in same day of [admitter] trading and others take longer.
Okay. But you should know your allocation beforehand, shouldn’t you? So you should know…
Exactly. Yeah, shortly after the results fundraise press release is announced, you’ll receive an allocation confirmation.
And of course, it’s not a new thing, investing in new issues or IPOs or placing. People have been able to do it ever since there’s been a stock market. But obviously, you’re a sort of one asset class provider. Why should people go through PrimaryBid to access new issues on IPOs, rather than just phoning up their stockbroker and saying do you have access to this, can I get involved?
Say we see it mainly being high net worth individuals who have access via their client broker to these placings, historically. The everyday retail investor tends to be excluded, and the first time they hear about it is when they see the results of the fundraise press release being announced the next day, by which time, it’s too late. So in terms of subscribing via your stockbroker outside the secondary market, just that full market price, we see PrimaryBid for the everyday retail investor as the only real place to get access to these placings, on a large scale.
And there’s been a couple of providers that have tried this before. There’s been significant changes in the A-market. I was talking to Justin Urquhart Stewart from 7IM, you know, he’s one of the original founders of the A-market, and he was saying it’s going through a lot of changes; it’s not quite what it once was. So what are your plans to win in this market? So how are you going to, as a business, win?
We’ve done 50 transactions to the platform already, raised over 65 million sterling to the platform. We’ve got commercial agreements in place with London Stock Exchange and Euronext. We recently completed our venture capital series A with leading investors of Pentech VC, who were early investors in Nutmeg, and Outward VC, who are backed by Investec. And alongside our VC-led fundraise, we made key appointments, including James Deal from JP Morgan and Eric Gallo from Goldman Sachs, to lead on sales and business development respectively.
So that’s a fairly broad board that you’ve got there. So the Euronext connection, does that mean you offer access to European issues as well?
So our agreement with Euronext covers nine European geographies in continental Europe and we’re due to launch in France in 2020. So at that point, that’ll initially be offering French placings to French investors, but the idea over time is to cross-pollinate.
So UK investors at the moment can’t invest in...
Not at the moment.
And what about the sort of big, exciting US ticket? Will people over here ever get access to new issues in America, and Japan and Asia?
When you look at the retail capital markets in the US and Asia, it’s even bigger than that in the UK and continental Europe. So further geographical expansion is definitely part of our plans.
And as well as looking abroad at access to new markets, there’s a big movement in the unlisted company space at the moment. Everybody wants to invest in, well, I say everybody, there is a subset of investors who want to invest in VC funds to get early access to high-growth fintech companies, much like yours, and equity crowd funding as well, where there’s a movement for smaller investors to perhaps invest in sustainable and ethical companies. Do you have any plans to try and aggregate that market, as well as providing access to listed stocks, provide access to unlisted markets?
So PrimaryBid focuses on publically-listed companies and as such, we don’t cover private companies. We see the public stock market resolving a lot of the issues with investing in private companies, such as lack of liquidity, lack of transparency, lack of governing standards, hence why we’re focused on retail investors investing in publically-listed companies.
And of course, I mean obviously, the A-market is very high risk, you know, the further down the market cap you go, the higher the risk, but unlisted stocks are probably at the highest end of the risk.
That’s generally the case. And you don’t have a secondary market for your shares.
You can’t get out, yeah.
For publically-listed companies, you have things like the listing rules. For AIM, we have nominated advisors, brokers, etc. They have disclosure requirements. They have to announce if it was a contract etc. When you move to the world of private companies, all of those listing rules just don’t apply.
And just one final question. Who’s it for? Who should sign up? Should new issues be a very small part of your portfolio? You know, should be investing in new issues if you don’t have exposure to the stock market? Or is it, in your view, a relatively high-risk product for sophisticated investors or for people who already have a balanced portfolio?
So we see PrimaryBid really open up the market to everyday retail investors, not just high net worths or sophisticated investors. In terms of subscription amounts, you can subscribe with PrimaryBid from as little as £100. In terms of your overall portfolio, these are obviously single stocks you’re investing in via PrimaryBid or when you just [pay] in any placing or IPO, and that should always be part of a balanced portfolio.
So diversification is key. Don’t put all your eggs in one basket.
I think everybody, that’s the sort of key lesson about investing that people need to understand. So you need to diversify.
Alright, well Kieran, thank you very much for talking to us. That was really interesting. Thank you very much for watching this episode of Good Money Guide TV. We’ll be back with another asset class to cover shortly. Thank you.
How to Trade IPOs
If you want to invest in a new issue or trade an IPO, here's our quick guide
An Initial Public Offering (IPO) is one of the most exciting events in the life any company. Owners sell shares to the public to raise funds for expansion. In exchange, new owners participate in the Co's new exciting future.
What should you look for in an IPO?
Uber (UBER), the behemoth tech taxi, listed last week in the US amidst a great fanfare. Its competitor, Lyft (LYFT), was also listed earlier. Some other interesting US IPOs recently were Zoom (ZOOM), Beyond Meat (BYND), Tradeweb (TW), Pinterest (PINS), among others.
However not all investors like IPOs. “In 54 years," said Warren Buffett recently, "I don’t think Berkshire has ever bought a new issue.” The reason? Animal spirits and selling incentives. The fact that IPOs are "going to be better than 1,000 other things I could buy where there is no similar enthusiasm … just doesn’t make any sense."
However, the masses - and Wall Street - still like IPOs. When animal spirits are bullish, you can't keep it down.
Where to invest in IPOs
If you are based in the UK you can invest in IPO's through any decent stockbroker. Most new digital investment platforms don't provide access to new issues so you can compare those that do in our stockbroker comparison table.
Or find out more about these stockbrokers that offer access to IPOs:
Should you wish to participate in newly-listed companies, here are five key questions you should ask before plunging in:
Five Things to Look For in an IPO
1) What's the story?
Every new company has a good story to tell. What's the vision? Is the sector a completely new one? Two decades ago, dot-com firms were all the rage. Now, payment, AI, cloud, automation, robotics are some of the hottest sectors. These fads do not last forever.
Look at the Cannabis sector. Tilray (TLRY) went ballistic last year amidst expectations of legal changes in some countries. Prices shot up 15x post-IPO in just three months! But prices have corrected by more than 70% from its $300 peak (see below).
2) Is the firm making money?
Many new IPOs are not profitable. This could impact the valuation of an IPO. However, being lossmaking does not mean its share price will go down. A related question is: Will the firm use the IPO proceeds to expand, reduce debt or conduct some other activities?
If investors think a firm's current losses can be financed by its internally or that its cash needs are not very high, its stock price may still rally post-IPO, especially if the IPO pricing was not aggressive.
For example, PagerDuty, an unprofitable cloud-based B2B tech firm, remains in a firm uptrend after its IPO (see below).
3) How did the previous IPOs perform?
This is an important question because it is about investor psychology. Investors are more likely to buy more if prior IPOs were hugely successful.
Lyft's persistent price decline post IPO - in excess of 40% - has dragged Uber's valuation lower (see below). Short-sellers saw the chance to pounce on its next victim after scoring success in Lyft. And they did.
4) End-of-Cycle IPOs?
IPOs are a product of a strong bull cycle. Demand is stronger in this phase; valuation higher. That's where the danger lies. Investors and traders can make lots of money 'flipping' IPOs during a mania (eg the dotcom boom in the nineties). But once the speculative mania ends, many IPOs went bankrupt. You need to be able to know, roughly, where the cycle is now.
Expectations matters too. An IPO with low expectations may perform better one with high expectations.
5) Do you have a plan to trade IPOs?
Strict discipline in buying and selling IPO shares is essential. A stop loss is a must because prices could move anywhere in its early days. It may double - or halve. Holding for the long-term requires a stop too. Take Snap, $25 to $5 in 18 months.
From experience, the best IPOs are ones that are listed in the early phase of an economic upswing because valuation are not excessive and expectations are low. Buying at the end of the cycle entail higher risks because more things could go wrong.