Flipping is most common in IPO’s when retail investors participates in IPO and sells their shares during first days of trading in stock exchange. Such flippers believe that the price will increase naturally or with help of greenshoe.
And such strategy of flippers could be not so bad in practice. Actually, there are some investors that do nothing more only are participating in numerous of IPOs continuously and are profiting in this way. However, there is one serious problem for flippers: if IPO is really promising and stocks are expected to rise, then usually allocation for retail investors is very low. The better the stock is the lower chances are to get these stocks during IPO. And, of course, an IPO bidder will get all the amount that he was bidding for if IPO will not be very successful, but after floatation beginning such stocks will hardly to increase, and flipper is expected to face losses.
Obviously this strategy has some weaknesses. The whole IPO process takes time and if a flipper has to wait for the IPO which can be quite rear is some cycles of the market, then he has to wait till stocks will reach stock exchange. For sure it is not an efficient way to work for the capital if investor receives very small allocation when all the capital is used in the waiting process.
Of course, it does not mean that flipping is not effective. However, only the most professional investors should try such strategies, because new stock comes with new possibilities and threats. Every stock offered in IPO should be analyzed very carefully. It is possible that stock is overpriced, but there is also a possibility that underwriters will make a mistake and will offer new stocks in to the market too cheap.
Yet, flippers are not very liked by IPO organizers and that’s why retail investors are getting lower allocation during IPO. Every company that go public wants to attract long-term loyal investors…
Investment psychology gains momentum in contemporary business world
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