Is Investing in IPOs Profitable? 📈

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📈 Is Investing in IPOs Profitable? 📉
Prof. Jay R. Ritter's Research Paper & Articles
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Nasdaq Economic Research Articles
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Welcome back to my channel! In this video, we dive into the profitability of investing in IPOs (Initial Public Offerings).
📊 Historical Performance of IPOs
We'll look at 40 years of data based on research by Professor Jay R. Ritter and findings by Nasdaq Economic Research, led by Chief Economist Phil Mackintosh. For more details, you can find the links to their articles in the description below.
⚙️ Factors Affecting IPO Profitability
Investing in IPOs involves various factors:
Time Horizon: Short-term vs. long-term
IPO Allotment Chances
Company Size & Profitability
Tech vs. Non-Tech Companies
Let's dive into the data and see how these factors affect IPO returns.
🔍 Understanding the IPO Process
Before we delve into performance, let's understand how an IPO works:
Private to Public: A company goes public by selling shares.
Investment Banks: They market the company and set the offer price.
Institutional Preference: Big investors get first preference, often leaving retail investors with fewer shares.
💡 Key Terms to Know
Offer Price: The price at which IPO stocks are allocated.
IPO Pop: The initial price jump on the first trading day.
⏳ Short-Term Investor Perspective
Short-term investors look to sell IPO stocks at the end of the first trading day:
Average Day One Gain: IPOs typically close 18% higher on day one.
Historical Trends: 31% of IPOs decline on day one, but 2020 saw a 40% jump with only 25% declining.
Company Size Impact: Larger companies often see higher first-day gains.
🏢 Mid-Sized vs. Large Companies
Higher Gains: Mid-sized and large companies tend to perform better on day one.
Demand & Profitability: High demand and unprofitable companies often see greater IPO pops.
Tech Companies: Experience a 31% jump on day one, compared to 11% for non-tech companies.
📅 Long-Term Investor Perspective
Long-term investors hold IPO stocks for up to three years:
Year One: 50% of IPOs underperform the market index by over 10%.
Year Three: 64% underperform, but 29% can beat the index by 10% or more.
🏆 Top Performing IPOs
If you manage to get the top 10% of IPOs, your investment could triple in value over three years.
📏 Size & Profitability Over Time
Large Companies: Unprofitable ones tend to perform better.
Small Companies: Generally show negative returns, but profitable small companies fare slightly better.
🔔 Summary
For short-term investors, there's a 2 out of 3 chance of seeing positive gains, especially with large, tech, and unprofitable companies. For long-term investors, more than half the time, returns underperform the index, but there's still a one in four chance of significantly beating the market.
Thank you for watching! If you enjoyed this video, please subscribe, hit the like button, and share your thoughts in the comments below. Let's get started on understanding IPO investing better!
#IPO #Investing #StockMarket #Finance #InvestmentTips #IPOProcess #MarketResearch

[@KanakAgrawal101]

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[@HiteshkumarBalapanuru]

what is the best time to enter recently listed IPOs? Can you share your thoughts on IPOs in tech/IT sector?