Despite the pandemic, stock markets continue to climb, one IPO is more successful than another, + 100% on the first full day of trading is no longer surprising, just like triple-digit returns after the end of the lock-up period.
It's just an investor's paradise. Since the old reliable investment cases have ceased to bring the desired return (government debts, bonds), or don't bring anything anymore (deposits), investors are moving into riskier assets. Traditional safe-haven assets no longer provide a portfolio with yield or resiliency. Portfolio construction is being completely taken back to the drawing board because people understand we'll face these low interest rates for a long, long time into the future.
Now, any IPO is a tidbit for an investor. It's a bit like the dot-com boom or the crypto boom of 2017. It's just the same things now - there are high interest rates and a lot of aggressive investors. IPO demand exceeds supply, there are not enough shares for everyone, and accordingly the so-called oversubscription occurs.
Are there any dangers for investors here? The markets are in a state of ecstasy, but investors may be underestimating lurking danger. First, the IPO market is overheated, just like all stock markets at the moment. Which means market adjustments can happen at any time. Moreover, the signals indicate the so-called asset bubble is inflating. The problem is that no one can determine the critical mass, and exactly when the bubble will collapse. The second risk factor is how the IPO process works, brokers in particular (read more below*).
The third low predictable feature is the IPO allotment process. An allotment commonly refers to the allocation of shares granted to a participating underwriting firm during an IPO. When an IPO is oversubscribed, it means that more people demand shares of an IPO than the number of shares being offered. Getting in on a hot IPO that is oversubscribed is incredibly difficult. This is where the underwriter comes in.
If demand is too high, the actual allotment of shares received by an investor may be lower than the amount requested. If demand is too low, then the investor may be able to get the desired allotment at a lower price. On the other hand, low demand often leads to the share price falling after the IPO takes place.
Thus, there's little chance of investing the desired amount in a hot campaign, and vice versa.
*How the BFT differs from stock brokers. The main difference is that we are only motivated by your returns, because this is the only way to get a brokerage fee. And stock brokers are not particularly concerned with your return, they only make money from your trade entries as well as exits. They don't even hesitate to sell trash under a pretty wrapper.
How Betfair differs from IPOs and the stock markets. Betfair doesn't overheat and there are no asset bubbles that will burst one fine day.
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