There was a time back in the 90s when investing in IPOs was a great way to make money quickly. But that was during the dot-com boom, and things have changed quite a bit since then. An IPO can still be a great investment, or it can be a very bad investment. When you invest in IPOs, you should be aware of a few specific risks that go along with it.
Lack of Information
When you’re thinking about investing in a publicly traded company, you have all kinds of information available at your fingertips. Financial analysts heavily scrutinize these companies, and you can benefit from what they discover.
With an IPO, you don’t have nearly as much information. The company will provide information about itself in its prospectus, but as that’s written by someone at the company, you can’t exactly expect it to be unbiased. Look around online for whatever information you can dig up yourself before investing in an IPO. You may not be able to find much, but it’s important to research as much as you can.