| Even during this pandemic, many companies have gone public, giving investors an opportunity to purchase their stock.
And while some of these IPOs have had a solid year, investors should still proceed with caution, financial experts warn.
Some financial advisors I spoke with said getting access to IPOs at the offering price becomes the biggest frustration for individual investors. Traditionally, shares of hot IPOs are made available to high-net-worth individuals who are big clients of the investment banks overseeing the IPO.
Additionally, large mutual funds and pension plans are also able to buy into IPOs at the offering price. And that means individual investors usually have to wait until the initial investors sell and then buy, usually at much higher prices, to get in on that IPO.
That means investors need to be cautious about IPOs because they tend to be overpriced by the time they become available to the public, experts say.
And let's face it, there's always a great deal of hype around many IPOs. That's exactly what you need to avoid, experts say.
That hype is nothing more than speculation. Remember that those companies looking to go public are still in some phase of early growth. While that growth might be rapid early on, the company can easily run into unexpected headwinds following the IPO. What looked like a "sure-thing" opportunity could quickly turn into a financial disaster.
That's why it's so important to do your research on a company before blindly jumping in just because it's a newly listed stock, explains certified financial planner Doug Boneparth, president of Bone Fide Wealth in New York.
"If you've done your due diligence, the company has strong fundamentals and you believe in the company for the long term, then it can be good to get in early," Boneparth said. "The price might be much lower today than years down the road."
But, Boneparth cautions: "Just don't buy hype. You're buying a company."
For more key stuff like this, please follow me on Twitter @jimpavia and check out CNBC's Financial Advisor Hub and CNBC + Acorns Invest in You: Ready. Set. Grow. |
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