MAM 183 - Tim & Tom Talk IPO's

There’s a lot of buzz flying around about hot IPO’s. On this episode of the podcast, Tim and Tom sit down to discuss all things IPO-related! If you have ever wondered “what exactly is an IPO?”, or “am I the type of investor suited for an IPO?”, give this episode a listen. You can find the transcript of the episode below, and we hope you enjoy! TRANSCRIPT: Tim: Welcome to the podcast this is Tim Mullooly. Today I’m here with Tom Mullooly and we’re going to be talking all about IPO’s or initial public offerings. There’s a lot to know about IPO’s. Some people don’t really know what to make of them or if they’re good or not to buy or what should we do with them. We’re going to kind of spell it out for you, get into the what to know about IPO’s. Tom: Tim, I think really before we get into anything further about initial public offerings or IPO’s, why don’t you just explain to our listeners what is an initial public offering. Tim: Right, probably a good place to start, an IPO, initial public offering is also, it’s the first time that a stock of a private company is offered to the public. The company has been private for a little while, they decide we want to go public and offer some shares of stock to the outside world so they have an initial public offering. Tom: When I’m buying shares of XYZ or ABC on the stock market and it’s been trading for years and years, how much money does XYZ or ABC actually get when I buy their stock? Tim: They don’t get any of that. Tom: Right, yeah so the only time that a company gets money from through a stock sale is the initial offering. The first time that they are, because they’re the sellers of the stock, anytime that you’re selling stock you get money in your account. When you’re buying stock, you’re taking money out of your account and you’re investing it into something. The initial public offering is the first time that you’re going to be permitted to buy the stock. It’s also the only time that the company actually gets the money from this sale. Now there are times where companies will do what’s called secondary offerings. They take some of their shelf stock and they say we’re going to issue five percent more shares as a way to raise money for the company. Really, the biggest way for people to get in on the ground floor unless you’re an insider is through that initial public offering. I think a lot of people, new investors may not understand when you’re buying shares of Microsoft, Microsoft doesn’t get that money. You’re actually just trading hands with someone else who’s looking to sell Microsoft and you’re buying their shares, that’s really how it works. Tim: Yeah and there’s a lot of different market adages that you’d hear about IPO’s. Sometimes if an IPO goes down people will say, well that’s just the insiders selling their shares, why would you want to buy the company if the insiders are selling. Tom: That’s a really good point and a lot of IPO’s or initial public offerings, if they don’t work out that seems to be the recurring theme that you hear, well the insiders are selling which technically is true. Tim: It’s true but it’s easy to say that in hindsight. Tom: There’s so many reasons why a stock can go down. Very few of them have anything specifically to do with that company, maybe their sector’s out of favor, maybe that the market went down, the market was pulling back when the company went public. That’s out of everybody’s control. Yeah, we hear that a lot when folks buy or there’s a popular initial public offering that a lot of people want and the stock goes down. Well the insiders are selling,