Investing in an IPO is always 1 of the investment choices in the stock market due to its good fundamentals & positive outlook published before listing. Many investors usually are convinced by such “marketing” gimmicks. In addition, many investors will think it is difficult to get listed in the stock market with all the compliance & requirements to be fulfilled.
Investors always enter into IPO stocks with the hope that the stock price will move higher than their subscription price after it gets listed, without realising the stock price may fall below their IPO price, at least within a year. However, the stock prices have no direct correlation to the fundamentals after they get listed.
Once the stock value is listed on the free market, the price of the security will fluctuate based on supply and demand. Factors affecting prices are not just about fundamentals, but may also be the self-interest of the big boys.
As a result, we often see IPO stocks starting to drop below their IPO price after listing. Have you ever wondered why the stock price of a public company goes down after going public, even though it was rated with positive fundamentals and prospects before going public?
If we look at the list of IPO stocks on KLSE in the past 1 year, we see that they have the same price pattern after listing.
The above stocks were listed more than 6 months ago, we have seen the stock prices marked up after the IPO & got pressed down after the stock price peaked. At some point, the price was even traded near or lower than the IPO price.
Why should we invest in an IPO if the price will be lower than the listing price? If so, why don't we invest when the price is lower, or invest during the IPO and make a profit when the share price peaks, and then buy it back again when the share price is below the IPO price? This would be the perfect way to profit in the stock market!
However, most retail investors or traders are not able to identify the peak or bottom with the usual analysis in the market, such as technical analysis or fundamental analysis. But we can still find the price peak by knowing the big boys’ transaction pattern to know whether they are distributing their shares while marking up the price. We will share this later if you are interested you may follow the link below to find out more:
Watched the recorded video here: https://www.roundnsurge.com/rs-member/course/104
Before we dive further into effective ways to invest in IPO stocks, let's take a look at why IPO stock prices can rise after an IPO and fall after an IPO.
Why are stock prices marked up after listing?
The reason is simple, profit taking. But why are the investors in this stock taking the profit? Isn’t the IPO price set at the fair value before it gets listed? Why are they selling below the listing price? This doesn’t make sense to many IPO investors in KLSE.
As we have mentioned earlier, after the stock is listed in the secondary market. The force that moves the stock price is not fundamental, but the demand & supply of the stocks which the norms call “the investor’s expectation”. We call it the big boys' expectation.
Our belief in the pricing mechanism in the stock market is influenced by the big boys. It can be institutional funds, private groups, & whatever party has the grouping power to move the stock price by themselves.
It’s all about the big boys’ expectation
Most retail investors & traders won’t have the same timing & pricing to sell or buy shares. Because every one of us has our own valuation, our entry & exit will always be different. If the whole market participants (investors) have a common valuation in each stock, everyone can make a profit with technical analysis. We still see the majority of retail investors are still losing money in the stock market even though they learned technical analysis.
All the price movement is about the big boys' expectations. IPO price got marked up because the big boys are marking up the price for the stakeholders that are not categorised under “high-stake” to take profit. [Substantial shareholders can’t sell their shares within the first 6 months.]
Why does the price fall after listing?
Since the company's fundamentals are so good, why take profits so early? If you knew you could make a short-term profit without losing anything, would you do it? Especially when you've worked hard to get your company public over the years. Of course, you will want to profit from it in the first place.
There is a saying in the industry that owning a listed company is like owning a money printing machine. You can print money through rights issues, pledges, raising company valuations, acquisitions, and more.
The first step to making a little money in the stock market after listing is to sell stocks to many investors when it is still "hot" in the market. Often, sophisticated investors who invest in an IPO profit when the company goes public at a high price and buy it back when the price is low.
These investors have a controlling stake, and the primary intention of the major shareholders of a public company is to maintain a majority stake in the company. Taking a profit by selling a small stake to the market won't affect them in the long run. They can buy back and keep their equity at a lower price. It is not necessary to increase the market value of their company. As long as the business is running, it can earn profits to pay wages and/or dividends, so for some owners that's enough. It doesn't matter to them whether their company's stock price is performing.
Invest smartly in IPO
Investors are opportunists. Whether you are a long- or short-term or dividend investor, the goal is to make capital gains. It makes no sense for an investor to earn a dividend while holding a 50% loss-making stock. Why wait if you have the opportunity to profit now? If you plan to buy the stock for the long term, move back in again later when prices are lower.
Short-term price fluctuations can be ignored if the IPO is invested for long-term purposes. If you want to make short-term profits from an IPO and re-enter into longer-term investments, there's basically no good way to gauge whether the stock price will go higher before the listing day. The directors of the company won't tell you that the price will go up after going public, because that's against insider trading.
We've found that the best way to know if stock prices are going to go up is after they go public. We can analyse the price increase intentions of the big boys from the trading volume and transaction price.
Know if they'll mark up to entice retail investors to buy their shares, especially those who didn't subscribe to the IPO sooner.
You might not be buying at the IPO price, but does it matter at what price you are buying? The question should always be WHEN they are going to have a rebound & WHEN is the price peak? The clue is, never use traditional technical analysis to time it.
Since we know they need to rise in the short term to profit from the listing, we can ride the short-term trend before the price goes south.
You don't need to know how to read financial statements or luck to invest in the stock market or IPO on KLSE. You just need to know how to read the big boys' intentions from their transaction data.
Follow the link below for price & volume analysis of the big boys' blog post. The following blog will explain the price & volume transaction in the 5 min chart for KLSE before the stock price rebound.
https://roundnsurge.com/news/how-to-select-klse-stocks-from-top-active-list
Join our upcoming webinar :
"Does losing money in the market crash experience still haunt you? Causing hesitation to enter into a stock while worrying whether the stock price will fall after your entry.
We will be sharing the price & volume movement with a 5 min chart that shows the stock price will continue to move higher in this webinar. With our analysis, you can identify whether the stock price will continue to markup higher & avoid “Pump-n-Dump” stocks."
Date :
SUN OCT 23 7:30PM
MON OCT 24 8:30PM
WED OCT 26 8:30PM
Registration Link: https://attendee.gotowebinar.com/register/902857802328269070
Easy way to learn how big boys accumulate shares: https://bit.ly/3AOhUz1
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Malaysia's stock market is a unique market; hence it requires a customized trading approach to tackle & swerve. Many existing traders in Malaysia apply a plug-and-play strategy from the overseas stock market, but it is not necessarily the best strategy to trade in KLSE. This is due to the difference in local and overseas stock market regulation and the size of market participants of institutional funds & retail investors.
“True traders react to the market.” is the backbone of our trading method. Our findings and strategies are developed through years of trading experience and observance of the operating style in Malaysia’s stock market.
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This blog is for sharing our point of view about the market movement and stocks only. The opinions and information herein are based on available data believed to be reliable and shall not be construed as an offer, invitation or solicitation to buy or sell any securities. Round & Surge and/or its associated persons do not warrant, represent, and/or guarantee the accuracy of any opinions and information herein in any manner whatsoever. No reliance upon any parts thereof by anyone shall give rise to any claim whatsoever against Round & Surge. It is not advice or recommendation to buy or sell any financial instrument. Viewers and readers are responsible for their own trading decision. The author of this blog is not liable for any losses incurred from any investment or trading.
