Monday, April 16, 2012

Much ado about an IPO

GT Capital is having an initial public offering and what happened is, I wasn't invited. Just to be clear, I am not writing this post because of sour grapes. In fairness to my broker, COL, they did ask me to participate in Megawide and Puregold's IPO. I declined both occasions. It is my opinion that an investor is better off avoiding initial public offerings. There is just not enough information in the prospectus to make a decision. For example, you do not know a company's dividend history, which is a substantial factor in choosing which stocks to buy. Since a private company is not subject to the same level of scrutiny as publicly listed ones, there might be some issues that is not factored into its valuation. The share price of an IPO is set by the company and only when it starts trading on the exchange will its stock price be determined by the market, the collective decision of thousands of investors. So I would take comfort that the price I will pay has been set by the market. Lastly, there is no way of being able to identify how well a company communicates with its shareholders. When you read a listed company's past disclosures to the public, you can tell if it is honest and if it really puts the interest of its shareholders. I would prefer to invest in companies that have been trading on the stock exchange for at least seven years or so to have enough data to make an investment decision. Happy investing!

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