Wanting to utilise technical analysis to study the historical prices in order to take advantage of rising trends? Rather than participate in an IPO and hope that the price will rise? See more information about Technical Analysis. This particular analyst and commentator had a personal experience with an IPO in the early s. If nothing else, it was thought to be a good experience at dabbling in the market.
Well, it was a fun experience to participate, and to be a real shareholder. But it was a total waste of money. The shares never went anywhere, and the company never paid a dividend. And the company was eventually swallowed up by a much larger wine making company compulsorily acquired. This experience was an important lesson. Be prepared to lose some or all of the money.
If we are truly serious about financial returns, the money can sometimes be better off in the bank either in a bank account, or invested in a bank - and this is NOT advice! One way that retail investors can participate in the share market is to take part in a public float an IPO - Initial Public Offering - or a subsequent new retail offer float after a re-organisation in the hands of a private equity company, for instance.
Some of the higher profile floats of recent years include: With floats like these, many investors were wondering how to get involved. It is so easy to get swept up in the hype that surrounds the initial share market listing of a high profile company - but will it be profitable or not? They looked promising at the time, but were they successful?
Are we serious about increasing our wealth? One thing to watch for is the activity where some people participate in the float with the clear intention of selling into the hype within the first few days - for what is known as a stag profit. This sort of activity was hinted at in the first few days of the Asciano AIO float in Should we invest in a public float? You can skip this introductory text and go straight to the charts further below. Exactly how does an Initial Public Offering aka.
Well, there are many good sources of this information on the internet, so we won't spend time on it here. What we will spend time on is what all the experts don't tell us about IPOs. It is important to remember a couple of things about the IPO process. When the time comes, we might, or we might not, receive the number of shares we requested.
The share issue can be over-subscribed resulting in the number of shares issued to each investor being scaled back. Then at some time later, the shares will commence trading on the open market, and on the first day of trading the share price might trade higher or lower than the issue price ie. And in fact it might be a long way above or below the issue price. As time goes by, the share price could then go any where - up or down - and by significant amounts. But how can the share price justifiably move up, or down?
To understand why these things happen, we need to remember that the traded share price on the open market is a reflection of the personal opinions of the market participants. Each of them might have done some calculations to estimate the real value of the shares; but it is only their opinion, which may differ markedly to everyone else's opinions.
This is where some investors get carried away with their opinions about the company and their opinion about fair value for the shares. It is dangerous to our investment capital to become emotionally attached to any shares.
Now, what about instalment receipts ie. That is, to make an initial deposit, and pay the balance in one or more future instalments which might, or might not, be optional payments. Read a little news about this listing saga. BrisConnections also used the instalment receipts process except that the instalment payments were NOT optional. This caused a big problem for BrisConnections investors because the trading price of the initial shares on the open market fell considerably, and they had the future payment obligation attached unbeknown to many of the market participants.
Skip this introductory text and go straight to the charts below. The average retail investor might want to participate in a public float an IPO for a number of reasons, such as:. The practising technical analyst who closely follows the share price charts would probably not participate in public floats, instead waiting to see a confirmed uptrend in the historical share price before risking hard-earned capital.
If there is no price chart history - there is no price trend - so no investment - and minimal risk. Of course, this Share Market Toolbox web site contains no advice, and we should always defer to a properly qualified and licensed individual who might be able to advise in an unbiased manner as to whether an intended investment is suitable for our own personal circumstances.
We need to remember that when an IPO comes to market, there is an initial offer price set. And this offer price can be arrived at in a number of different ways, meaning that there will be a number of different possible float prices. This is possible because many assumptions need to be used in the pricing model, and it is very dependent on the estimates of forward earnings.
One might expect that the offer price will be close to the intrinsic value which can be argued is merely educated guesswork. The final offer price can be influenced by a number of things. When the company managing the float approaches the institutional investors to seek their interest, if there is a lot of interest then the offer price can be pushed upwards as the different parties basically bid higher and higher prices in order to participate.
However, if there is little interest, then the offer price can be somewhat subdued. This is the basic economic principle of supply and demand. Then when the shares are floated and they start trading on the open market, the amount of real interest for those shares in the market place can push the share price higher, or a lack of interest will pull it lower.
And this depends on a number of things such as the number of float participants who are keen to sell their allocated shares for whatever reason. So, depending on a number of circumstances, the share price might go up or down after listing.
And nobody will be able to accurately predict this in advance - that is, absolutely nobody can predict this, not your broker, nor adviser.
So any participant who wants to see their investment capital improve will be simply hoping that it does. This is totally unlike using a structured discipline like technical analysis to identify a rising trend - remembering that a confirmed trend is likely to continue. Skip the rest of this introductory text and go straight to the charts below. Over the years a number of empirical studies have been done to examine two key observations: The two consistent conclusions from the studies are that:.
For information about the research, see the links at right " Research papers ". Here are a number of research reports into the actual results of public floats over the years:.
It has been quoted in the press November that a wise broker once said the difference between a hand grenade and a company float is that the average investor has enough sense to throw the hand grenade away. Based on the evidence, the chances of an IPO returning positive capital growth in the short to medium term seem to be low below 50 percent. It can be argued that to best protect investment capital one should seriously consider avoiding the IPO. For a personal experience, see the short story at right.
The price charts below include a number of samples of IPO performance in the short term soon after listing and in the long term over months or years.
Of course, it is easy to suggest that these charts are a selective collection to support the argument. However, they are intended to demonstrate some real examples of what has happened in the past - whatever has happened before can happen again.
For more information on this topic, see the list of references in the column above right On day 1, in the first hour of trade from 11am , the share price opened at 23c, above the issue price of 20c. For the rest of the day, in each hour, the price moved higher to close the day at Day 2 - High volume with a black candle as sellers took profits.
Price stayed mostly above 24c during this day. Volumes mostly lower each hour, and the number of trades each hour below 20 ie. From day 2 onwards for 6 days, the trading was within the range of the first day, and progressively lower. Trading on Monday 26 Sept fell below the previous trading range but stayed above a floor a support level of 21cents. The overall price trend on this chart is down, with a Lower Peak on 30 Sept the high of the daily candle , and a Lower Trough on 26, 27, and 28 Sept the lows of the three candles.
Read more about price trends. On this chart we can now see a confirmed downtrend, with a sequence of lower peaks and lower troughs. For about 5 weeks through December and into January the share price hovered around the IPO float price level of 20 cents, before continuing its movement lower.
Note the number of weekly trades in the bottom pane is less than 30 trades per week from mid-November onwards. Many traders look for more than 50 trades per day on average. This candle is a Dragonfly candle, and shows the presence of sellers during the day who were over-powered by the weight of buyers.
However, over the next 5 trading days the share price made lower highs each day. Investors were not sure whether to support higher prices by buying more, or to sell. We also notice on this chart that the daily volume and daily trades values were high enough to make this a liquid stock and able to be traded on the basis that a sell order would probably be filled quickly.
Read more at Stock Liquidity. The price action described at left in the two daily charts is covered on the above weekly chart in just the first 11 candles. After that, the share price continued the fall that it started on 8th February, and paused the fall above 67 cents in early April.
A red dotted line is drawn on the chart above the price action to indicate the confirmed downtrend a sequence of lower peaks. The astute technical analyst probably exited the position during this downtrend, because of the belief that a confirmed downtrend is likely to continue until it is confirmed to be over refer one of the six tenets of Dow Theory.
There were plenty of opportunities to cut losses and close a position. An hourly chart showing just the first two days of trading - a winner from day one.
For the rest of February, the price has traded within the range of about 31 to 43 cents. Still well up on the issue price.More...