What is IPO (Initial Public Offering)?
An IPO is the first time a privately held company offers shares to the public on a stock exchange, transitioning from private to public ownership and raising capital from public investors.
IPO (Initial Public Offering) Explained
IPOs generate significant excitement but carry unique risks. There's limited historical data, the initial price can be volatile, and early investors (insiders, VCs) often sell after lock-up periods expire. Studies show that most IPOs underperform the broader market in their first few years. The disciplined approach is to wait for the initial volatility to settle before considering an IPO stock.
Real-World Example
A tech company IPOs at $25 per share. On the first day, it surges to $45 on hype. Within three months, it settles at $18 as lock-up expirations flood the market with insider shares. Patient traders who waited for the dust to settle could buy at $18 with better risk-reward than those who bought the IPO at $25.
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