May 14, 2006

Initial Public Offering (IPO)

       Oft times you will read about companies offering an "initial public 
offering" when they first 'go public.' Then there is a mad scramble as 
the savvy investors swoop in and get the stocks prior to the little guy 
having a shot. The stocks then shoot up and then you or I can get to 
buy at the inflated price. The "big boys" make a mint and we get left 
holding the bag as the price settles into a fair market value. 

        First of all, what exactly is an initial public offering? It is pretty much 
exactly what it sounds like. Every company that is privately owned and 
decides to expand, raise capital or divest personal risk can go public. 
This means that anyone with capital can buy a portion of the company. 
When a company goes public, it means the company then is required to 
follow regulations set forth by the securities and exchange commission 
(SEC), have a board of directors and have quarterly financial reports. 

       Most people only hear of the companies like Google that had an IPO and 
then the price of the stock skyrocketed. In reality there are many IPO's every year, 
most of which are not on the evening news. Those are offered, people purchase 
the shares and corporate life goes on. Truth be told, even the companies that are 
on the news for having an IPO generally aren't a glamour story. Most come out, 
maybe have a run up, and then settle in to 'normal' conditions. 

       Just because a company has an IPO doesn't necessarily mean it is moving to a new 
level, or going to be successful either. Having a public company means you are listed, 
but where are you listed exactly?? Could be lots of places, but might not be any place 
that the average Joe has even heard of. For lower-priced stock you could be traded 
over the counter, meaning the stock doesn't have to meet requirements set forth by 
major exchanges like NASDAQ or the NYSE.  These stocks are followed by .OB, 
meaning over the board. (For example the company Rob would be traded over the 
counter would be listed as Rob.OB) Anyone can buy OB stocks, but they are less 
liquid than stocks traded on major exchanges. This means the stocks can take more 
time to buy or sell, but with today's electronic liquidity, they still buy and sell pretty quickly.

        That's a lot to chew on, but basically I wanted to get the point across that IPO's are 
not anything to get too excited about generally. If the company is worthwhile, the price 
will reflect that, and if you want to buy it, make sure you are keeping the value true to 
life, and not getting too hyped up by publicity or hype. True value will be here today or 
tomorrow, and today's hyped IPO may be tomorrows biggest loser.

Until next week,

Good investing to all,

Rob

Rob @ Wealth Training Source.com



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copyright Robert E. Britt 2006