How investing in IPOs can help build long term wealth?

Podcast Duration: 05:30

Hi friends and welcome to this podcast by Angel Broking.

Doston whether you are new to the world of stock trading, or whether you have been in the game for a while, aapne kisi na kisi point par IPOs ke baare mein zaroor suna hoga. In fact, it is possible that you encountered the word in newspapers ya fir some TV channel that broadcasts business news. Am i right?

In case you are not familiar with what an IPO is, toh ek baar review kar lete hain.

IPO stands for initial public offering. IPO basically is the process by which companies list their stocks on the stock market, and make them available for traders on a stock exchange for the first time. Some people also call this process ‘going public’. Toh if a company is going public, iska matlab ye hua ki it is going to offer stocks on an exchange for the first time.

Well, IPO kya hota hai, ye samajhna toh simple hai. Lekin why are we talking about IPOs in the context of wealth building? That’s exactly what we are going to discuss in this podcast. Toh shall we start?

Okay then. Let me start by telling you about a famous IPO that took place in the US 1980 - can you guess which one it is? We are talking about Apple Inc - that’s right. Apple went public for the first time in 1980. It is said ki 1956 mein jab ford motors went public, toh apple was the first company after ford to beat in terms of the amount of money they raised through their IPO.

But here is the most interesting part - jab Apple went public, they offered 4.6 million shares on the NASDAQ. As soon as the IPO started, the shares were sold off almost instantly..

Doston that evening, Apple ke shares ki value rose by 32% - can you imagine? Some news snippets from the 1980s still say ki us din, at least 300 millionaires were created.

IPOs attract investors, kyunki they posit a great potential for investors to grow their money with a company right from the start.

Do you know about any famous IPOs that took place in india? Reliance Power went public in 2008 and DLF went public in 2007 - these are just two examples, jahan par the stocks shot up fast on the first day itself.

But we are talking about generating long term wealth through IPOs - so is there a potential for that, beyond the hype of the first day of trading after a company goes public?

Actually, IPOs are ideally suited for long-term investors. To understand why, let us give you a cool idea - when you are free today, go to google and look at the lifetime growth of the share prices of Apple’s stocks. And then do the same for Reliance industries too - jab aap stocks ke price charts ko analyze karoge from the day on which they went public, you will get a good idea of what is happening here.

Doston IPOs can be great investment vehicles for those who are looking at long term investments. However, you have to consider a few factors before signing up for an IPO.

The first thing to consider is the company’s past track record, because IPOs can go both ways. IPOs are not simply an upward progression.

One of the first things you should consider, is whether you have an idea of the company’s performance, and what they are doing in their industry. Koi koi companies start se hi apni industry ke competitors se better aur innovative products aur services offer karti hain, while some are simply competing on the basis of margin.

Aur current offerings ke beyond, aapko us company ke offerings ki relevance ko judge karna chahiye in the long run. In addition, look at their senior management, and try to find information on their financials.

The challenge here is that IPO ke liye sign up karte hue aapke paas company ke past performance ka concrete data nahi hoga. So don’t listen to your guts here, look at evidence for prospects of long term growth.

Was that too much to comprehend in one go? Don’t worry, now we are going to slow down!

Toh basically, yahan par fact checking ke alawa industry outlook bhi aapke decision ko affect karega. For example, is it wise to sign up for the IPO of an automotive company that makes diesel cars only, and shows no signs of research in the direction of electric vehicles? Let’s leave this question for you to answer!

Lekin doston, if you can differentiate between mediocre performers and companies that are going to lead their industries in the future, then investing in their IPOs can be a great way to build long term wealth. Ye isliye, kyunki IPO ke time par price transparency is more than what you get at other times - just think about it - during an IPO, you are likely to have the same pricing information as the bigger investors, and this changes drastically post IPO. If you have identified a high-growth company to invest in during their IPO, you can ride the growth wave right from the inception.

Toh doston, isliye, IPOs can be a great way for investors to build wealth in the long run. However, just like other investment scenarios, research should be the driving factor of your decision to invest in an IPO, not your intuition, or gut-feeling.

My friends, that is all we had for today’s podcast. We hope you enjoyed this discussion.

But don’t stop learning here - to learn more about IPOs and the upcoming offerings in the stock market, visit www.angelbroking.com.

Until the next time, goodbye from Angel Broking, and happy investing!