What Is an IPO?

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An IPO is an initial public offering of a stock, and it generally includes lots of fanfare and announcements about the company coming on to the stock market. Wait for initial prices to settle down before purchasing stock during an IPO with advice from an investment manager in this free video on investing.

Part of the Video Series: Stocks & Mutual Fund Investments
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Video Transcript

Alright what is an IPO? An IPO is an Initial Public Offering of a stock of an equity. And that is usually a lot of fanfare, a lot of announcements and you'll see a new company that may even be an existing company that's been privately held. But what they do is they'll issue the stock for the first time and usually it's primarily institutional buyers, people with a lot of money who can buy large chunks of that stock who are first in line. As the day goes on during the offering of the stock, you may be able to get out there and purchase a few shares but those shares will be significantly higher then with the initial public offering price wise. So as a stock that may come out at say 35 dollars in the morning for the big players that are first in line may actually be up to 60, 70 dollars by the middle of the day if you're pursuing it. Something to know about initial public offerings, you never know which was the stock is going to go and sometimes the initial price is a good value but as soon as it gets to the secondary market and starts getting traded, that price is going to take a big jump because everyone wants to be in on the new issue. 9 times out of 10 when that happens, what happens is by the end of the day the price has come down and the next few days the price will go back closer to the initial price. So unless you have a lot of money to get in line first with an IPO, I would wait a couple of days or give it a day just to see what's going on with the actual price because there's a lot of emotions and a lot of exuberance that pushes that price up initially. But again, an IPO is just the initial public offering, the first issue of a stock.

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