Even for professional investors it is extremely difficult to beat the overall equity market’s return consistently. With every investment decision, we should aim to improve our likelihood of success by incorporating as much relevant information as possible.

So, what are the odds of outperforming when investing in an IPO like Snapchat? It is not good!

Prof. Jay Ritter analysed 8061 IPOs in the USA between 1980 and 2014. In the first three years after listing, these stocks under-performed the overall market by 17.8% on average. If, however, you can get hold of IPO shares before they list, or very early, on the day of listing, your chances of making money, as a day trader, is very high. IPO shares typically have large gains on their first day of trading, with an average price increase of 17.9%.

There are many successful IPOs and most stocks get listed through IPOs. However, when you do invest in one, be careful because history shows that the odds are not in your favour.

I try to improve my odds when investing by using stock screens, not only with good track records, but also with good fundamental reasoning behind them. There are plenty of these on Stockopedia.

Phi

Unlock the rest of this article with a 14 day trial

Already have an account?
Login here