Avoid this mistake when investing in an IPO

Arn Kacer
4 min readDec 11, 2020

Yesterday I bought some IPO stock, entered the order early but missed out on an extra 120% profit. Let me tell you what happened, so that you will not make this same mistake.

I was looking at this company for some time already. I missed out on several good investments while waiting. However, this one seemed like a no brainer. A company with decent revenues, able management and employees, loving customers. I was clear I want to buy.

So as the day of the IPO approached, I was following the news and collecting my cash.

Though some time ago, I heard it is possible to sign up to buy the stock before trading starts at a preset price — the IPO price. I did not bother too much. Why go with this extra hassle, if you can buy when the trading starts at about the same price, right? Well, it turns out there is a little detail. But let me tell you the full story.

Ready to buy

So there it comes, the morning, when the company was supposed to start trading. I set up an alarm at the start of the trading day. Made sure I had the time available to get online and login. I tested my access to the broker’s app on the cell phone. Then, just to be sure on my computer as well. A bit nervous and big on anticipation, I was expecting the opening bell of the stock exchange.

While I still had some time, I googled the opening bell stream, so I could be really live. It seemed like a big moment. I was waiting for the news to break out and fill all the newspaper. I imagined the headlines, everybody talking about this. Definitely, felt like I did not want to miss out.

I was probably a bit overzealous and over-optimistic.

The opening bell rings

As the opening bell was about to ring, I decided to place my order. My broker already had the ticker listed and the trade button was enabled. So I entered my amount and price a bit above the IPO price and imagined myself as a proud owner of shares of this new public company.

Of course, I was not 100% sure that the trade will go through. So I decided to watch for a little while. The market opened, updates started coming in, but for some reason this stock did not have a price. I was getting a bit anxious, but still thinking, maybe this is a new stock, so nobody is trading it yet. After about half an hour, I found that there was a new price set for the stock, but it was 2.2 times as much as the IPO price. It seemed at first as if they were testing something.

This looked strange to me. I started to google a bit. Then it hit me hard — it turned out that there is a difference between the IPO price and the price the company starts trading at. In this case it was 120%! I was devastated, even if I bought at this price I would already be basically loosing these 120% — the profit I could have had had I signed up for the IPO directly. I could have already doubled my money! I was sad, I was angry, I felt betrayed. I thought gee, why?? These are amazing money!

As the time went on, I went through this, thought through it back and forth. I felt I was so stupid. I hated that. But at the end I realized the market does not care about how I feel. If I wanted to buy into this company, I had to raise the price I offered in my order and just clench my teeth. Thinking — this is a good company, let’s pay a bit more for it and get in. I am in this for the long term anyway.

So I managed to buy at about the price where the company started trading.

Learning

Dear reader, if you are sure you want to buy the company and you anticipate high demand, don’t be foolish waiting for the trading to start and try to get hands on the stock during the IPO phase before trading starts.

Be careful though, there are many IPOs that end up below both the IPO price and the initial trading price on the first day of trading or some other day later.

In bullandbearlist.com we build tools for regular people to search for such high potential companies. Please note that all investments entail risk and these are just my opinions, not a professional financial advice. I am not a professional financial advisor. I may or may not hold positions in mentioned companies.

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