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Are IPOs a Sure Shot Way to Make Money?
Jun 15, 2017


IPOs have caught the frenzy of investors. Looking at the performance of IPOs listed in 2017, one could see the reason why. Almost 75% of the IPOs listed in 2017 till date have given positive returns. Although we are nowhere near the euphoria of 2007, we are slowly but surely getting there.

According to Hindu Business Line, till June 2016, only 40% of the IPOs launched between 2004 and 2011 were trading above their issue price. One then wonders if it makes sense if the euphoria is justified. Billionaire investor Warren Buffett certainly doesn't think so....

    "It's almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller (company insiders) to a less-knowledgeable buyer (investors)."

Investors need to understand the purpose behind IPO listing. It is either to raise money for the business or as an exit route for private equity investors or owners. In both the cases, the owners of the company tend to overprice the value of their business since they are aware of the hoopla surrounding the IPO and the number of investors waiting to lap it up.

Value investors rarely if ever look at IPOs as a way of making easy money. For them, valuation and business fundamentals are all that matters.

Data Source: BSE, Hindu Business Line

This Chart Of The Day was published in The 5 Minute WrapUp - A Pharma IPO in a Market That Loves IPOs but Hates Pharma

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