Should you buy during IPOs ?

You might already have seen or heard about THAT company everybody’s talking about, the one everybody says they will invest the very first minute this company will start to be traded. But is it worthy ?

Consider the incoming FOMO

Usually, when a famous company triggers their Initial Public Offering, the medias will write it in their headlines, create a massive environment around it, making you think “Will this company  make me a millionaire” ?

Then, the Fear Of Missing Out will appear, and could pump the price up to make it double or even triple depending how big the FOMO is. A good example is “Snowflake” (SNOW), a cloud data storage, which was supposed to do the first opening in a $75-$85 stock price range and ended up by opening at $245.

snowflake

Hedge Funds will have the best price before you

Usually, when there is an IPO, there isn’t just one but two.

The first IPO is solely for hedge funds that will invest dozens of millions at a lower price than you.

Still with SNOW, Berkshire Hathaway bought for $730M total worth at $120. It the meantime, you have to wait for the second IPO. If you wanted to buy SNOW the very first minute you could, you would have had to pay $243, the double compared to  the first  opening.

The SP will be lower at the close

Wether it is for IPOs or for news, the Share Price will be always higher at the opening than at the closing. You usually will have a slight gain during the day and then will in the most cases will decrease as the FOMO disappears.

SP gaining trend 

SP losing trend

SP at the opening

To conclude, if you want to buy an IPO, ask yourself this question : “Does the current SP match the fundamentals?” If it does, go for it ! But if it doesn’t, why for a pullback or just wait for the FOMO to disappear. 

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