3 ms·

Has anyone ever purchased stocks early on for a startup that went IPO? Is this a wise thing to do?

Alex3917 16y ago
"Has anyone ever purchased stocks early on for a startup that went IPO? Is this a wise thing to do?" There is a lot of academic research on this that you should look at.
- DTrejo 16y ago
  Links and elaborate?
  - Alex3917 16y ago
    I don't know of anything offhand, I just know that it's been extensively studied. One of the terms you might want to search for is "first day pop." If you read through a few of those papers then you should be able to find most of the other important metrics as well. For a company like LinkedIn with relatively weak fundamentals, one would expect the executives to purposely underprice the stock in order to generate a big first day pop because they are looking for an exit. So if I had money to invest, I'd probably buy at the opening bell and sell at noon. But don't take that as investment advice.
    - jambo 16y ago
      The "first day pop" is largely unavailable to the average person. You're right that underwriters price the IPO for this phenomenon, but it is to entice their clients to buy. The pop is from outsiders (you) buying from insiders. If you're not dealing in big money, you won't be buying from the underwriter at the IPO price, you'll be buying at the higher price (if you put in a market order), or not at all (if you put in a limit order near the offering price). That's not to say that investing in an IPO is a bad long-run decision.
      - Alex3917 16y ago
        You can still buy as soon as the market opens though, as long as you're fine paying a few bucks over the insider price.
    - chollida1 16y ago
      > one would expect the executives to purposely underprice the stock in order to generate a big first day pop because they are looking for an exit. The executives typically are locked not being able to sell on the first day of trading. It also looks bad if they do sell. It's the investment bankers that want to see a stock shoot up on the first day of trading. It's their clients who are the most likely to hold the stock for an hour and then sell it.

"Has anyone ever purchased stocks early on for a startup that went IPO? Is this a wise thing to do?" There is a lot of academic research on this that you should look at.

DTrejo 16y ago
Links and elaborate?
- Alex3917 16y ago
  I don't know of anything offhand, I just know that it's been extensively studied. One of the terms you might want to search for is "first day pop." If you read through a few of those papers then you should be able to find most of the other important metrics as well. For a company like LinkedIn with relatively weak fundamentals, one would expect the executives to purposely underprice the stock in order to generate a big first day pop because they are looking for an exit. So if I had money to invest, I'd probably buy at the opening bell and sell at noon. But don't take that as investment advice.
  - jambo 16y ago
    The "first day pop" is largely unavailable to the average person. You're right that underwriters price the IPO for this phenomenon, but it is to entice their clients to buy. The pop is from outsiders (you) buying from insiders. If you're not dealing in big money, you won't be buying from the underwriter at the IPO price, you'll be buying at the higher price (if you put in a market order), or not at all (if you put in a limit order near the offering price). That's not to say that investing in an IPO is a bad long-run decision.
    - Alex3917 16y ago
      You can still buy as soon as the market opens though, as long as you're fine paying a few bucks over the insider price.
  - chollida1 16y ago
    > one would expect the executives to purposely underprice the stock in order to generate a big first day pop because they are looking for an exit. The executives typically are locked not being able to sell on the first day of trading. It also looks bad if they do sell. It's the investment bankers that want to see a stock shoot up on the first day of trading. It's their clients who are the most likely to hold the stock for an hour and then sell it.