Personal Finance: IPO fever

Much like what happened over a decade ago, many investors in the local stock market have succumbed to the IPO fever. By this I mean that every time there is a new public offer available, everyone and his brother immediately lines up to get a piece of the action. Take the market’s latest IPO for example, online gaming firm Pacific Online. After being offered to the public at the price of P8.88 per share, demand was so great that on opening day, the issue zoomed up 50 percent to P13.25 per share. In fact, the issue even reached as high as P16 per share before sellers started coming out and the stock went down to as low as P13 per share. Now, if you are one of those who have started hearing stories about how people have been making fortunes out of these IPOs, here are some things to ponder before you jump on the IPO bandwagon. First and foremost, realize that IPOs are not a sure thing. Yes, since 2006, no initial public offer or secondary offer has failed to make money for its investors; however, that fact is no guarantee that succeeding offers will do great as well. Do not assume that just because one IPO doubled in value in two days, then the next one will also zoom as well. Second, be prepared for disappointments. IPO allocation is very much a subjective process and it is ultimately up to each individual broker or underwriter how many shares they will give to each person. Consequently, do not be surprised if, as a new client, you only get a minimal number of shares. Most brokers usually allocate first to their older and bigger clients so newbies to the stock market should not be surprised if brokers are unable to give them any IPO shares. To give a more concrete example, let’s go back to the above-mentioned Pacific Online IPO. In said IPO, each brokerage house was only allotted roughly 60,000 shares at a price of 8.88 per share. The minimum allocation per individual is 1,000 shares so each broker could, in essence, just give the minimum amount to 60 individual or corporate accounts. Now, since most brokers have at least a hundred clients (and some have thousands), whom do you think the broker will prioritize when it comes time to allocate such a hot item? The old client who has been trading heavily and regularly? Or the new guy who just walked in the door with no past trading history? Consequently, if you were new to the IPO game, your best bet to get a large allocation would be to go directly to the main distributor of that particular issue (known as the underwriter) and apply for shares there. In order to find out who the underwriter or underwriters of a particular issue are, ask your broker or ask the PSE directly. Lastly, if you are able to get shares, make sure you have a clear exit strategy well before the issue lists on the market. By this I mean that you should have a very good idea as to what price, if any, you would be willing to sell your shares at. This is because, having no clear idea as when you would be happy to sell is the fastest way to lose money on an IPO. Going back to the Pacific Online example, a lot of people sold at P15 to 16—or almost double the IPO price. However, still more people refused to sell since they believed that the issue would quickly reach P20 per share. Unfortunately, the issue has gone down since then and a lot of people who refused to sell at 16 suddenly found themselves selling their shares at P14 or below. The main point here is that you should never let greed or emotion decide when you should sell your holdings. Instead you should set a target that makes you happy and if that target is reached—then sell. Never mind if the stock goes even higher after that. You reached your goal and you should be happy. No one is ever able to always sell at the absolute peak and if that is what you expect then you will hardly ever be fulfilled. With all of that said, what are some of the IPOs that are still in store for the rest of the year? Well, as of this time, the IPO of Philippine National Reinsurance Co. has just concluded and people are just waiting for the listing date—which is April 27. Said offer was hotly received by the public and all indications are that it will do well. (Again of course, even though everyone expects it to do well, there is no guarantee that it actually will.) The next one is a secondary offer by listed bank Union Bank of the Philippines. Though there is yet no final price for that offer, quite a number of brokers are already taking down reservations so those who are interested better get in touch with their brokers as soon as possible. Further information on the Union Bank secondary offer as well as a listing of future IPO’s can be found at the PSE web site located at http://pse.com.ph.  Malaya A. Laraya is a registered financial planner and a member of RFPI. Along with preparing financial plans for clients, he is also very active in conducting seminars aimed at educating college students about personal financial planning. Comments and questions can be sent to laraya910@yahoo.com. Join the seventh RFP Program (July 7-August 25, 2007). Visit www.rfp-philippines.com or inquire at /tel. 634-2204.

 

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