by : Elton John



As per the conventional wisdom,the investors need to purchase stocks with the intention of holding them for along term. The money can be made only when, the individuals keep theirinvestment for a year or so. Although this is true and investors need to stickto it, most IPOs come with a discount tag to their actual value and can presentprofits to the investor thereon. This profit is what, termed as listing gain.

Tips for IPO investments:?

Below mentioned are a couple oftips that can hold an individual in good stead while investing in IPOs. By investingin IPOs, investors block a huge chunk of their cash for about a month or so. Moreover,invariably, the number of shares allotted to individuals is not even half ofwhatever they apply. This is a critical thing, as it can happen that the sharesmay get oversubscribed at least 6 to 7 times and investors may invest only asmall amount. The ultimate result would be they might end up not getting asingle share. In these circumstances, not only do they lose the interest forthat time being, but also lose opportunities of investing in other IPOs thatwere open during that time.

In order to avoid suchsituations, it is better for investors to try investing only during last coupleof days of an IPO. In addition, they need to keep an eye on the number of timesthe issue got oversubscribed. Investors can easily monitor this by goingonline. With a hit and trial method, they can get a fair idea about the amountof shares that they would get, based on the money invested and the number oftimes the issue gets oversubscribed.

Important Parameters ofConsideration:

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Although most IPOs result ingains for the investor, there has to be some watchfulness regarding the IPOs toinvest. Generally, it is a good idea to invest in the IPOs of those companiesthat have yielded good returns to their investors. It is also better to have alook at, the previous record of accomplishment of such companies and the numberof years of their existence. This would at least give an idea to the investorthat, the promoters have a good understanding of the business. In addition,they are not fly by night operators.

The other important factor is to have a look at the P/E multiple. It stands forthe Price/Earning Multiple. Here, the "pricing" is as per the presentmarket price of the share, and "earning" is the earning per share ofthe company. P/E multiples of stock indicate the number of times the market iswilling to pay for the current earnings of the firm. For instance, a stock hasan EPS of $ 10 and the market price of the share is $ 100, this means that P/Emultiple is 10 or the investors are willing to pay 10 times the company’searnings.

On most occasions, promoterslaunch their IPOs at boom times and extract the maximum of out them as the IPOsin all probabilities get oversubscribed many a times. Nevertheless, this doesnot go well for the investors, as they are stuck with their shares at a higherprice with lesser chance of appreciation.