What is an IPO and is it a good investment?

[financialfreedom]

Hi,

I registered here about 2 years ago with an interest in learning more about stocks and playing the trading game, but due to work etc never had time to pursue it.

I am finding that I have more time on my hands these days and would like to learn more and maybe start trading.

I have recently been given an opportunity by my best friend in Hong Kong to participate in a what he said to me was an APO. He said I could buy stocks of a company, but with a discounted price to the listing price.

Is this true and is it a good investment?

 

[Julia]

Re: What is an APO and is it a good investment?

You may have misheard what he said, and what he was saying was an IPO - Initial Public Offering.

It's an offer by a company of its shares to potential buyers prior to the stock actually being listed on the exchange.

If you Google it you'll probably find some more information.

Not necessarily good or bad. Depends entirely on the company and current market conditions.

 

[pixel]

Re: What is an APO and is it a good investment?

You may have misheard what he said, and what he was saying was an IPO - Initial Public Offering.

It's an offer by a company of its shares to potential buyers prior to the stock actually being listed on the exchange.

If you Google it you'll probably find some more information.

Not necessarily good or bad. Depends entirely on the company and current market conditions.

I thought along the same lines: IPO rather than APO.
If that's true, I fully support Julia's words of caution - and would reinforce them even more to the cautious side.

If a company wants to sell itself to the general public - that's what an "Initial Public Offer" is in effect - the intention is usually to raise as much money as possible, in order to fund whatever business plan is behind the idea. So, they will look for a financier, usually a broker or fund manager, who has contacts to the capital markets and/or interested private investors who are reasonably flush with money.

If the business plan is sound, if the organiser is reasonably certain of success and willing to "underwrite" the issue with own money, then first offer will go to larger clients who have a "direct line" to the facilitator. Retail clients like "we small fries" will either hear about it when it's all done and dusted, or get some crumbs left over to make up the numbers.

If, on the other hand, the Big End of Town can't be bothered, the broker will most likely phone around their retail clients and offer this "exciting new opportunity" as a special deal to you and me.

Reading between the lines and getting a feel for the difference between "fully underwritten" and "underwritten to up to $2M" will often tell already which category an IPO falls into. And which one to avoid.

The alternative: Don't fall for any initial promise, but note the issue date and first trading date; then observe the market depth before trading opens, and see whether scalpers abound, trying to sell at a tiny profit or even get out at a small loss. Watch the first trades - usually it starts in one direction in the morning, then turns around towards the end of the trading day.

My personal rule about IPOs is: Don't buy them!
In my credulous early days as a green noob, I have taken part in numerous IPOs - especially those that were spruiked by brokers and well-meaning "eggspurt" friends. I found out the hard way, I would have been better off EVERY TIME had I waited and bought AFTER the first trading day(s). Or not at all.

 

[bellenuit]

Re: What is an APO and is it a good investment?

Hi,

I registered here about 2 years ago with an interest in learning more about stocks and playing the trading game, but due to work etc never had time to pursue it.

I am finding that I have more time on my hands these days and would like to learn more and maybe start trading.

I have recently been given an opportunity by my best friend in Hong Kong to participate in a what he said to me was an APO. He said I could buy stocks of a company, but with a discounted price to the listing price.

Is this true and is it a good investment?

I concur with the previous posts. One additional point to consider is the exchange that the company is going to be listed on once the IPO is complete and the shares begin trading. Is it going to be listed on the Australian Stock Exchange or on the Hong Kong exchange? If the latter, do you have an account with a broker that can sell HK shares when you want to sell them.

How are you buying the shares offered in the IPO? Are they available to non HK residents? Is your friend going to buy them for you and hold them in his name?

No disrespect, but the content of your question indicates to me that you have no experience whatsoever in buying or selling shares. If that is the case, then this company, if HK based and you are not, may be too complicated for you to begin with.

 

[Joe Blow]

I have changed "APO" to "IPO" in the title of this thread and moved it to the "Beginner's Lounge" forum. I am assuming that "APO" was an error or misspelling and that "IPO" was the intended acronym. If not, the thread starter can contact me via PM with further details.

 

[Kremmen]

Re: What is an APO and is it a good investment?

The alternative: Don't fall for any initial promise, but note the issue date and first trading date; then observe the market depth before trading opens, and see whether scalpers abound, trying to sell at a tiny profit or even get out at a small loss. Watch the first trades - usually it starts in one direction in the morning, then turns around towards the end of the trading day.

My personal rule about IPOs is: Don't buy them!

This is good advice. Like all rules, it's also good to look for exceptions: Some of the government floats (e.g. early CBA and TLS) were under-priced by design to make sure investors made a profit. Other aspects which can make it worthwhile are if there is a demand greater than supply, or a significant push in the press. The biggest gain per day I've ever made was from buying into the DPL (Daily Planet, now PPN) float, as it doubled in the first 2 days.

 

[skc]

Re: What is an APO and is it a good investment?

My personal rule about IPOs is: Don't buy them!
In my credulous early days as a green noob, I have taken part in numerous IPOs - especially those that were spruiked by brokers and well-meaning "eggspurt" friends. I found out the hard way, I would have been better off EVERY TIME had I waited and bought AFTER the first trading day(s). Or not at all.

Really depends on when you started following IPOs - the floats back in the dot.com days were pretty much all guaranteed stag profits - Back in 1999 I actually bought hotcopper.com.au and it got a takeover offer in about 2 weeks, doubling the share price.

But those were strange times.

Anyway, the point is each float is different and as such should be considered independently of their merits.

 

[TabJockey]

TO SIMPLIFY:

If you cant get any shares in an IPO: Its probably going to make a motza! All the banks know it and they are buying it before it gets to retail investors

If you can have all the shares you want and it feels like your broker is ramming it down your throat: Its probably going to TANK, not always but a good chance of it.


They usually teach this with a small parable:

John looked at the history of IPO's and they make an average return of 40% in their first year. Wow thats amazing says John, all im going to do is buy IPO's and I will get a return of 40%.

A year later John is broke and asks his friendly ASF chums why, they reply "anything good the brokers kept for themselves, and anything **** you bought heaps of!"

 

[pixel]

Re: What is an APO and is it a good investment?

This is good advice. Like all rules, it's also good to look for exceptions: Some of the government floats (e.g. early CBA and TLS) were under-priced by design to make sure investors made a profit. Other aspects which can make it worthwhile are if there is a demand greater than supply, or a significant push in the press. The biggest gain per day I've ever made was from buying into the DPL (Daily Planet, now PPN) float, as it doubled in the first 2 days.

Certainly - but most "good" ones happened last century. You could've added WAN, which I bought when it was floated after the Bond-Bell debacle. Bought all I could get for $1 and sold some a few years later so I didn't need a mortgage when we "upsized".
TLS was OK, I guess - as long as you sold at the right time. When my FSB at the time gushed how it would be a $10+ stock in no time, I instructed her to sell - just a tick above $9.

But I'm not so sure about DPL - that may have risen initially, but the euphoria was only short-lived: Look at the chart:

Nowadays, floats don't give much away anymore. Just see how much advertising it takes to get Queensland Rail off the ground...

PS: I found an interesting eBook on the subject. May be worthwhile to download http://www.asx.com.au/professionals/pdf/201007_asx_ipo_workshop.pdf from the ASX website.

 

[Kremmen]

Re: What is an APO and is it a good investment?

But I'm not so sure about DPL - that may have risen initially, but the euphoria was only short-lived:

It was definitely short-lived. It slowly fell to around 10c over a few years. Just pointing out that tons of media coverage can push a stock up, just as AGO powered along after it was covered on 60 Minutes.

 

[financialfreedom]

Thanks to all who have responded. I asked my best friend and he indeed confirmed it is an IPO. But it won't be available publicly.

He has told me that he will leave a certain amount of shares that he can guarantee for me to purchase if I am interested and have the funds.

The company he is looking to float will be listed on the OTCBB. What he explained to me was that his company has purchased a Shell and then will be putting assets of his 3 current companies into it - forming a larger company.

He has told me that these shares will not be liquid for some time whilst his company seeks to have the OTCBB company jump onto the NASDAQ.

Once the company has jumped onto the NASDAQ - the shares will be liquid.

He has said he is raising funds so that the company may grow so that it may be able to be listed onto the NASDAQ.

The PE (Price to Earnings) ratio is 14, which he told me is quite healthy. The company is only issuing 20m shares with the float - there is a total of 70m shares, but 50m of which will retained for all the directors and previous investors.

 

[Julia]

Oh god, at the risk of seem to be offering advice, don't touch it!

Even if you know nothing about the market, can't you see how diabolically and utterly risky this is?

If you've never been had before, this may just be your great opportunity.

 

[basilio]

Oh god, at the risk of seem to be offering advice, don't touch it!

Even if you know nothing about the market, can't you see how diabolically and utterly risky this is?

If you've never been had before, this may just be your great opportunity.

Ouch..!! Agree 100% It appears as if the company directors are raising some cash and trying to create a market for the shares they are creating for themselves.

Use a very long pole.

 

[Tysonboss1]

Hi,

I registered here about 2 years ago with an interest in learning more about stocks and playing the trading game, but due to work etc never had time to pursue it.

I am finding that I have more time on my hands these days and would like to learn more and maybe start trading.

I have recently been given an opportunity by my best friend in Hong Kong to participate in a what he said to me was an APO. He said I could buy stocks of a company, but with a discounted price to the listing price.

Is this true and is it a good investment?

Ipo = it's probably overpriced

 

[My Mate Said]

Maaaaaaate, good question new here myself. just reading down from your original question.. you have received some VERY succint and logical replies.that asx site Pixel refered to has a great graph on the success of last years ipos worth a look.Also look at whether the comp. has mangement that have been involved with WINNING ipo's before and directors gifting themselves 50% of the shares issued probably wont LOSE if the raising tanks.....look at the ipo of NVU on ASX Fri 10/12/10 at 1.00pm......just before listing numbers on buy were much greater than numbers for selling then at ABOUT 1.10pm 1mil. buyers turned into 200K buyers and sellers numbers shot upc s/p turned down I will look next week and see if it holds value....

 

[My Mate Said]

First post first mistake on IPO for NVU wrong.... UNV right

 

[TabJockey]

Oh god, at the risk of seem to be offering advice, don't touch it!

Even if you know nothing about the market, can't you see how diabolically and utterly risky this is?

If you've never been had before, this may just be your great opportunity.

I also agree! Especially with the last line! (im going to use that one myself )

 

[bellenuit]

Thanks to all who have responded. I asked my best friend and he indeed confirmed it is an IPO. But it won't be available publicly.

He has told me that he will leave a certain amount of shares that he can guarantee for me to purchase if I am interested and have the funds.

The company he is looking to float will be listed on the OTCBB. What he explained to me was that his company has purchased a Shell and then will be putting assets of his 3 current companies into it - forming a larger company.

He has told me that these shares will not be liquid for some time whilst his company seeks to have the OTCBB company jump onto the NASDAQ.

Once the company has jumped onto the NASDAQ - the shares will be liquid.

He has said he is raising funds so that the company may grow so that it may be able to be listed onto the NASDAQ.

The PE (Price to Earnings) ratio is 14, which he told me is quite healthy. The company is only issuing 20m shares with the float - there is a total of 70m shares, but 50m of which will retained for all the directors and previous investors.

This is going to be a US listed company, so they will not be as easy to buy and sell as Australian shares. Even though some Australian brokers do allow you to trade US shares (CommSec for instance), they may not touch penny stocks listed on the OTCBB.

I would be very careful investing in such a company. The insiders (directors and previous investors) have a majority ownership and can make decisions detrimental to the outsiders (shareholders such as you). For instance, they could issue additional shares which they can allocate to themselves as compensation (directors payments etc), all the while diluting your interest in the company. Also, getting on to the NASDAQ is not so easy. It requires them meeting certain standard regarding share price and reporting and they may not be able to meet those requirements.

There are some good companies on the OTCBB, but lots of bad ones. If you believe in the trustworthiness of you friend, then it might be worth a punt, but as a newbie, I think you would be better off buying blue chip Aussie shares, than looking at a high risk company such as this.

 

[pixel]

Thanks to all who have responded. I asked my best friend and he indeed confirmed it is an IPO. But it won't be available publicly.

He has told me that he will leave a certain amount of shares that he can guarantee for me to purchase if I am interested and have the funds.

The company he is looking to float will be listed on the OTCBB. What he explained to me was that his company has purchased a Shell and then will be putting assets of his 3 current companies into it - forming a larger company.

He has told me that these shares will not be liquid for some time whilst his company seeks to have the OTCBB company jump onto the NASDAQ.

Once the company has jumped onto the NASDAQ - the shares will be liquid.

He has said he is raising funds so that the company may grow so that it may be able to be listed onto the NASDAQ.

The PE (Price to Earnings) ratio is 14, which he told me is quite healthy. The company is only issuing 20m shares with the float - there is a total of 70m shares, but 50m of which will retained for all the directors and previous investors.

While I don't know your "best friend": He may be the one honest businessman in an Ocean of shonky operators. The entire setup: rolling assets of 3 into one, "jumping" on NASDAQ (with what???) sounds fishy from the outside. If ever there was a reason for the old saw "Only invest an amount of money you can afford to lose" - this is it. Kiss your money good-bye and forget you owned it. If, after the escrow period expires, you get anything back, accept it as a gift from heaven. "One Powerbal..."

But without offence to your mate, IMHO, one gets you ten it's a scam. Friendships usually end over financial "tips" given in all innocence, then turning sour. If you accept those risks, hand him your cash with eyes wide open. Best of luck

 

[boofis]

Just a random question to anyone who wouldn't mind; where can I find the total number of shares a company has? I've been searching on ASX but have had no luck. Any help is appreciated.