Should You Buy an IPO for Short-Term or Long-Term Gains?

The answer to whether you should buy an IPO for short-term or long-term gains really depends on your investment goals and strategy. Also, which IPO you plan on purchasing makes a difference as to what would be best for your investment requirements.

While many high profile companies such as Google and Apple have had phenomenally successful IPOs, many smaller companies go public with less fanfare and also provide investors with good returns. If you want to get in on an IPO, then you need to have an account at an investment banking house.

Opening an Account with an Investment Banker

Whether you are purchasing an IPO for short or long term investment goals, you will first need to be able to access the IPO market.
This requires that you open an account with an investment banking broker, such as Goldman Sachs or Morgan Stanley.

Accounts at an investment banking house that allow an accountholder to bid on shares of an IPO generally have a minimum deposit of $100,000 to $500,000. Other requirements often include a minimum time to have the account open before being able to bid on an IPO, a minimum amount of trading experience and/or a certain level of account activity.

Buying Through Your Stock Broker

After you have opened your account at an investment banking house, and you have your name on a list and begin receiving prospectuses, you will more than likely be assigned an individual stock broker, since your account will most likely be a full service brokerage account.

The broker you will be assigned is there to take your stock and bond orders and most likely also to advise you on investments offered by the investment banker, including IPOs. Your broker would be the person you work with on obtaining shares in an IPO.

Remember, having an open account, being on a list for prospectuses and officially being able to participate in an IPO does not necessarily mean that you will be able to actually buy shares of the stock you want at the IPO price.

Because investment bankers have a long list of clients, if the IPO is of a company that has stirred a lot of controversy or has been wildly successful, your chances of getting any shares at the IPO price could be very slim unless you have been actively trading through the investment banker for some time.

Which IPOs and Long or Short Term Investments

The type of company going public and their future prospects should be the determining factor on whether to buy for the long term. Buying an IPO for the short term makes sense for quick profits, as long as you don’t just get out of the stock on the day of the IPO.

Many investment bankers consider this to be “flipping” which is a practice that is generally frowned upon. If you are fortunate enough to get some shares at the IPO price, hold them for a day at least, to avoid any problems with your broker.

Of course, getting a stock on the first day it goes public and being able to buy it at the IPO price could be the investment of a lifetime, depending on the stock, just ask anyone who bought shares of Microsoft, Apple or Google when they first went public.

By InvestorGuide Staff

Copyrighted 2020. Content published with author's permission.

Posted in ...