Wednesday, February 13, 2008

IPO Myths

There exist several myths about IPOs, which lure the investors into applying for each and every IPO that come in their way. The general perception is that IPOs are a fail-safe way to make money and that if one invests money in an IPO returns are guaranteed.

This is the greatest myth about IPOs. Many IPOs will result in losses for the investors, the prices of the same will go down because of several reasons like a weak company, over pricing, weak management or simply because the price fell along with the general markets. A look at the companies mentioned below, these firms show you how many IPOs have failed in the past.

A second myth about IPOs is that if one steers clear of the smaller companies and invests only in IPOs of well-known companies one will make guaranteed profits. This is also not true as we can see that a lot of well-known companies like HT Media, Provogue, OBC, Allahabad Bank, Jindal Polyfilms, T.V. Today Network are listed in the table below. These are all big companies and chances are that most investors would have heard of them before the IPO. But still they figure in the list and the most likely reason is that the issue was over priced.

This is an important learning for all of us.

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