You may have heard about Initial Public Offerings (IPOs) as many consumer brands, like Facebook and Shake Shack have gone public. But what are some things you should know before investing?
An IPO is also referred to as “going public” and an initial public offering is the very first sale of stock issued by a company to the public.
Before an IPO, the company is privately held, with a relatively small number of shareholders that is made up primarily of early investors such as the founders or professional investors like venture capitalists. The public is any individual or institutional investor who wasn’t involved in the early days of the company and wants to buy shares of the company.
Before you purchase stock in a company that is going public, make sure it is backed by credible banks. Also, be sure to research similar stocks to see how the industry is doing. If the prices of the related stocks are high, there is a higher likelihood that the IPO will succeed.
There are no guarantees and while it is easy to get excited about a new stock, some experts advise on waiting to purchase a stock until it has a track record.
You do not need to be a personal stock broker to understand stocks as there are plenty of available resources. Investing for Dummies and The Stock Market Explained are great books that can help you break through the buzz.