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Initial Public Offer (IPO)

When a company wishes to put itself up for public trading it will start by setting a price and putting itself up for share trading with an initial public offer. An initial public offer can be a pretty big gamble on the part of the investor. It is difficult to determine whether the company will lose points off of the price it has set in its initial public offer. The future of the stock itself is uncertain because there is no history to gauge how well the stock will perform. Because many companies are going through a period of transition when putting their company on the stock exchange it is hard to say whether or not the transition will result in increased profitability for the company (meaning stocks are likely to go up) or whether it will grind the company into the ground.

Initial Public Offer A good way to gauge whether the company whom you wish to invest in is likely to remain profitable and become a good investment is to check their track record. If the company is well established with many customers then you can probably be assured that the company is likely to remain profitable in the long term. However, if the company has become profitable from a passing trend that may soon fall out of fashion (i.e. the company that created the shoe known as ‘crocs’) then you should not invest in them. It is important to do some research after a company has released their initial public offer and their intention to become a publicly listed.

Whilst it might be risky to invest in a company after they have released their initial public offer – if the company is something that is likely to have long term profitability it might be worth buying a few shares. Think of Google. If you bought shared whilst they made their initial public offering you would be sitting on shares that have increased their value by one hundred fold by now.

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