The theme for this week is IPOs. An IPO, or initial public offering, refers to a stock that becomes publicly traded for the first time. When a company offers ownership for the first time to the public, it can seem like a great opportunity to get in on the ground floor, but investors should exercise caution when investing in IPOs.

So this week I’m sharing with you what you need to know when considering an investment in a newly minted publicly traded company.

If you caught previous episodes this week, you might have picked up on the fact that I’m not a huge fan of IPOs. They are highly speculative, and many IPOs just don’t pass the test when it comes to their established history of profitability.

That being said, there is still opportunity to make money in IPOs if you want to have a little fun and play in the IPO market.

Today I want to focus on timing, which is crucial to be aware of if you’re going to invest in IPOs.

Timing matters because many investors who invest in IPOs are not in it for the long-haul. They’re looking to flip and make a quick profit. If you realize that, you’re less likely to get burned.

In the first few days of trading, there is a lot of excitement around IPOs and there can be wild swings in price. It’s often a good idea to sit on the sidelines in the initial days to let things settle down. After the initial hype, you may want to look again and see where the stock is and decide if you want to own it.

The other timing consideration that you want to be aware of is when the lock-up period for the IPO expires. Company and other insiders who were issued stock in the initial IPO will often be free to sell shares after the lock-up period, which can range from 3-24 months after the IPO. Many insiders will sell their shares after the lock-up period, so knowing when the lock-up period expires will help you from getting blindsided if insiders dump their shares and drive the stock price lower. The plus-side is that the dip in price that usually accompanies the end of a lock-up period can often be a good time to buy.

That’s it for today. Thanks for listening.

My name is Ashley Micciche and this is the One Minute Retirement Tip.

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