IPO on the Stock Market: An Explanation for Beginners

Introduction: Why IPOs Matter More Than You Think

The Story of Apple: From Garage to Billions

In 1980, a little-known company called Apple conducted its Initial Public Offering (IPO). Investors who bought shares on the first day for $22 could not have imagined they were holding a ticket to the future. Today, a share of Apple is worth over $220 — a tenfold increase over the decade. These are not just numbers; they are the stories of individuals who invested a few thousand dollars and reaped millions.

However, Apple is by no means a guarantee. An even more critical number: 10% of all IPOs conducted over the past 20 years have fallen by 50% or more within the first year. Investors who believed in these companies and put their money in lost half their capital almost immediately.

Three Key Questions

What is an IPO, and why can it either create millionaires or bankrupt trusting investors? Why do companies share their ownership with millions of strangers instead of just borrowing money from the bank? And how can a beginner protect themselves in this high-stakes financial game, where the interests of all participants (investment banks, executives, early investors) work against their interests?

This article will provide you with a complete understanding of the IPO mechanism, from the moment a company decides to go public to when its shares start trading in the market. You will learn about the psychology behind first-day trading speculation, the hidden conflicts of interest that may work against you, and how a beginner can invest in IPOs successfully without major mistakes.

Part 1: Fundamental Concepts of IPOs

What is an IPO and Why is it a Historic Event?

An IPO, or Initial Public Offering, is the moment when a privately-held company first offers its shares to the general public. It is akin to a small restaurant owner, who instead of keeping complete control, offers city residents to buy stakes in the restaurant and share in the profits.

But an IPO is much more than just selling shares. It is a threshold of transformation. After an IPO, a company must disclose its financial performance every quarter, undergo regulatory scrutiny, and allow investors to vote at annual shareholder meetings. If before the IPO the company was a kingdom where the owner was the sole master, after the IPO it becomes a democracy where shareholders have a say.

For the company, an IPO is an acknowledgment that it is ready for the next stage of development. When Facebook went public in 2012, it raised $16 billion. This funding fuels expansion, acquisitions of competitors (like Instagram), and investments in new technologies. The company receives currency (investors' money) that allows it to grow faster than it ever could by merely relying on bank loans.

IPO vs. Bank Loans: Why Companies Choose Equity Over Debt

When a company needs cash, it has choices. The first option is to borrow money from a bank. The bank will grant a loan at a certain interest rate, and the company has to pay it back, regardless of whether it is profitable or not. The bank is indifferent to the success of the company; it just wants its interest. If the company defaults, the bank could seize its assets.

The second option is to attract venture capital. An investor provides funds in exchange for equity in the company. If the company becomes a billionaire, the investor earns millions. However, venture capitalists usually demand considerable influence over company decisions, appoint their people to the board, and monitor expenses.

The third option is to conduct an IPO. The company offers shares to the public. Investors buy not because they demand control, but because they believe in the company's potential. The company receives money but is not obligated to repay it. Most importantly, the company can issue more shares in the future and raise additional funds.

From Private Company to Public: The Life Cycle

A company's life usually goes through several stages. At the first stage, it’s just an idea — a group of friends builds an app in a garage (like Apple and Google). Funding comes from friends, family, or personal savings of the founders. At this stage, the company has virtually proven nothing, making the risk maximum.

In the second stage, venture capital arrives. Investors see potential and believe in the market. For example, Uber secured $200,000 from a venture fund in 2009. At this stage, the company is growing, hiring employees, and leasing office space, but is still unprofitable. It burns through investors’ cash to fund expansion and compete with others.

By the third stage, the company becomes profitable (or close to it). It has a solid customer base, a proven business model, and a competitive advantage. At this stage, the company can conduct an IPO. Investors now believe not in potential but in reality. The company has proven it can make money and survive in a competitive marketplace.

After the IPO, the company enters the fourth stage: maturity. It is no longer a startup with an innovative mindset. It now has responsibilities to millions of shareholders, quarterly reports, and annual meetings with investors. Once-revolutionary ideas become bureaucratic processes. The company either becomes a long-term entity (like Microsoft, which went public in 1986 and continues to prosper), or begins to decline due to losing agility and its innovative spirit.

Stock: A Unit of Ownership

When a company conducts an IPO, it is not just selling abstract "shares." It creates stocks — special securities that represent a share of ownership in the company. If a company went public and issued 100 million shares, and you purchased 1,000 of those, you own 0.001% of the company. This is not just a number on a screen; it represents real ownership rights.

This has real consequences. If the company goes bankrupt and its assets are sold, you receive your share of that money (if anything is left after debts are paid). If the company issues dividends (a share of the profits), you receive your proportion of those dividends. If there is an annual shareholder meeting, you can vote — one share, one vote. You can even call for the CEO's resignation if you believe their salary is too high.

However, a stock is also a tool for speculation. The stock price depends not only on how much money the company is making, but also on what other investors think about its future. If everyone believes the company will grow at 30% annually, the price goes up. If everyone thinks the company is on a downturn, the price falls. This creates both opportunities for profit (if you buy low and sell high) and risks of loss (if you buy high and are forced to sell low).

Part 2: Participants and Roles in an IPO

The Issuer Company: Who Conducts the IPO and Why

The issuer company is the one that issues shares and conducts the IPO. Typically, this decision is made by the board of directors, which believes the company is ready for the next stage of development. The CEO and CFO spend months preparing, meeting with investors, preparing financial reports, and convincing regulators that the company is worthy of this step.

For the company, an IPO is like graduation from school. There is an opportunity to raise a massive amount of capital, there is responsibility to shareholders, and there is uncertainty about how the market will perceive the company. The company knows that post-IPO, it cannot close itself off from public scrutiny. Every quarter, it will have to either disappoint or delight investors with new figures. Every mistake will spark discussions on financial news websites. Every rumor about selling the company will stir shareholders and impact stock prices.

However, the company desires an IPO because it signifies financial independence. It will have funds that it can spend on growth without needing to explain to a bank why these expenses are necessary. It will have shares it can use as currency for acquiring other companies. And it will be able to pay employees with stock options instead of cash salaries — cheaper in the short term but creating a strong incentive for hard work.

The Underwriting Syndicate: Investment Banks and Their Conflicts of Interest

An investment bank is an organization that helps a company conduct an IPO. Large investment banks like Goldman Sachs, Morgan Stanley, and JPMorgan Chase have extensive experience in this area. They know all the SEC rules and regulatory requirements and all the maneuvers within the financial markets.

But here is where a conflict of interest arises, working against the novice investor. The investment bank earns money through fees — typically 3-7% of the total amount raised in an IPO. If a company raises $1 billion, the investment bank earns $30-70 million. This is the figure that the investment bank wishes to maximize by any means necessary.

How does it maximize its fees? One straightforward approach is to convince the company to set as high a price for the IPO as possible. The higher the price, the greater the fee. So the investment bank nudges the company toward a higher valuation even if that evaluation does not reflect the fundamental value. However, what is good for the investment bank may be detrimental to new investors who buy shares at inflated prices and lose money 6-12 months down the line.

Additionally, the investment bank is often the primary buyer of IPO shares. It buys a significant portion of the shares and then resells them to retail investors. If the IPO turns out to be unpopular, the investment bank may find itself with a pile of shares it cannot sell. This is a risk for the investment bank but also a reason why it can manipulate the market by creating an illusion of IPO popularity to attract more buyers.

Regulators: SEC, Central Banks, and Investor Protection

In the U.S., the regulator is the SEC (Securities and Exchange Commission). The SEC requires that the company disclose all material information about its operations prior to the IPO. This includes financial reports for several years, potential risks, conflicts of interest, biographies of executives, lawsuits involving the company, and more.

All this information is compiled in a document known as S-1 in the U.S. or an offering prospectus in other countries. This documentation can span 200-400 pages. The SEC reviews it thoroughly, asks questions, and requests clarifications and justifications. The process can take several months and involves multiple rounds of correspondence between the company and the regulator.

The goal of the SEC is not to prevent an IPO (the SEC cannot prohibit a company from going public if it meets the requirements). The goal is to ensure that investors have sufficient information to make informed decisions. If a company conceals or misrepresents information, the truth will soon come to light (through financial reports, competitors, or the media), investors will lose money, and lawsuits will arise.

In Russia, a similar role is played by the Central Bank and the Federal Financial Markets Service (FSFM). In Europe, this responsibility falls to the ESMA (European Securities and Markets Authority). All these institutions pursue the same goal: protecting investors through transparency and disclosure requirements.

Investors: Retail vs. Institutional

Investors are typically divided into two categories: retail (ordinary individuals who purchased a few shares through a broker) and institutional (pension funds, insurance companies, mutual funds that manage billions of dollars).

In practice, during an IPO, the majority of shares are bought by institutional investors. They may purchase millions of shares at once because they have the funds and are buying on behalf of their clients. Retail investors receive whatever shares are left — if any remain at all. Sometimes retail investors cannot purchase IPO shares at all — at least not during the initial offering. The investment bank may initially offer the shares to institutional investors before, and only if any remain, to retail investors.

This aspect of the system works against the novice investor. If you are a small investor with $10,000 in your account, you will not receive the same opportunity as Vanguard (a large mutual fund with $7 trillion under management) or BlackRock. Vanguard will get the required number of shares at the offering price, while you may only receive leftovers or nothing at all, as the IPO sells out too quickly.

Part 3: The Preparation Process and Stages of an IPO

Pre-IPO: Financial Audit and Regulatory Approval

The IPO process begins long before the first trading day. Several months before the announcement, the company hires an investment bank (known as the lead underwriter), which becomes its sponsor and partner. The investment bank starts preparing documents, getting financial statements in order, and preparing the company for life as a public corporation.

The first step is a financial audit. An independent auditing firm (such as one of the Big Four: Deloitte, PwC, EY, KPMG) examines all the company’s financial records from the past few years. The auditor ensures that the company is not hiding immense debt, that all reported income is genuine and not fabricated, and that reserves are properly established. If the auditor uncovers problems, the company must address them. This may involve reclassifying revenue or recognizing concealed liabilities, making everything public.

The second step involves preparing the offering prospectus (S-1 form in the U.S.). This document discloses everything investors need to know about the company: its history, business model, key competitors, potential risks and opportunities, financial results from the past 3-5 years, future plans, executive compensation, and legal disputes.

The third step entails meeting with the SEC (or its equivalent in other countries). The company submits a preliminary version of the S-1. The SEC reads it, raises questions, and demands clarifications or additional information. This back-and-forth correspondence can last several months. The SEC might ask, "Why didn’t you disclose this contract with a competitor?" or "How did you assess the fair value of this acquisition?" The company must respond in detail, and the SEC may pose further inquiries.

Roadshow: Presenting to Investors

After receiving SEC approval, the roadshow begins — one of the most intensive phases of IPO preparation. The CEO and CFO of the company travel across the country (or around the world), meeting investors to present the company. The roadshow can last 2-4 weeks of intensive work, with meetings in each city with 15-20 mutual funds, pension funds, insurance companies, and hedge funds.

The CEO shares the company's vision for the next 5-10 years. The CFO presents the numbers: revenues, profits, growth rates, and margins. Investors pose challenging questions: "How do you know the market will grow by 20% as you forecast, if the economy is slowing?" or "Who's your main competitor, and why do you believe you can outpace them?" The answers influence whether investors want to purchase IPO shares in large quantities.

The roadshow also serves as an opportunity for the investment bank to gauge market demand. After each meeting, the investment bank receives feedback: "No, the price is too high; we're not interested," or "We're highly interested; let me purchase 5 million shares." Based on this feedback, the investment bank decides which price point will attract sufficient interest from large investors.

IPO Day: Pricing and Subscription

At the end of the roadshow, the investment bank and the company determine the price range based on the information gathered. For instance, they might decide that shares should be priced between $20 and $25 because this range captures maximum interest. At the end of the day, when the roadshow concludes, the investment bank assesses demand and establishes the final price. If demand is enormous (everyone wants to buy), the price goes to the upper end of the range ($25). If demand is weak, it settles at the lower end ($20).

Once the price is set, the subscription period begins — a short window (usually 1-2 hours in the evening) when investors can submit orders for shares. An investor might say, "I want 100,000 shares at $22." All orders are collected by the investment bank. If overall demand totals 10 million shares while the company offers only 5 million, that results in a 2x oversubscription. The investment bank decides who gets the shares, typically allocating them to its loyal clients and large funds.

Investors who submitted requests at the offering price are called book runners. They are guaranteed a certain number of shares. For them, the IPO typically results in profit since the price often rises on the first trading day, allowing them to sell shares at a profit.

Listing and Commencement of Public Trading

On the following morning, the company's shares begin trading on an exchange, such as the NYSE or NASDAQ (where tech companies are listed). The CEO may call the exchange to hear the company's symbol announced to the world and broadcasted on all news channels. For example, "Apple Computer, Inc., AAPL." This is the moment the company envisioned during its founding and long journey to the IPO.

On the first trading day, everything typically happens quickly. Investors who didn’t get shares during the IPO (most retail investors) now want to buy them at any cost. Demand is huge while supply is limited. The price may jump from the offering price (let’s say $22) to around $30 within the first hours of trading. This can mean an instant 36% profit for those who bought during the IPO.

However, it also means that the company may be overvalued almost instantaneously. If the company was valued at $22 on the day of the IPO (based on the best understanding of fair value by investment banks and analysts), a valuation of $30 on the first day of trading could represent a speculative bubble. Investors purchasing shares on the first trading day at $30 risk losing money if the price falls to $18 the following week.

Part 4: Risks and Investor Protection

Lock-Up Period: Why Prices Decline After It

One of the most puzzling and profitable phenomena in IPOs is the drop in share price after the lock-up period ends. What is a lock-up period? It’s a period, usually lasting 180 days (6 months), during which company insiders (founders, board members, executives, early investors who owned shares before the IPO) cannot sell their shares on the open market.

Why is there such a restriction? The logic is both straightforward and apparent: without it, insiders could unload their shares immediately on the first trading day when the price surged by 50% or 100% from the offering price. If a founder who bought shares for $5 (during early funding) sees a price of $25 on the first trading day, they could sell all their shares and reap enormous profits multiple times over. However, that would flood the market with shares, leading to price drops due to oversupply, causing new investors to lose money, and the company would face scandal.

The lock-up period protects new investors by keeping insiders from selling during the critical first 6 months. However, when the lock-up period ends (after 6 months), insiders can finally sell their shares. And they typically do, often en masse. A significant number of shares flood the market during the first week after the lock-up period ends. Demand cannot keep up with supply. Prices drop by 30-50%.

This occurs with nearly every IPO. For instance, Facebook went public in 2012 at $38. On the first day, the price rose to $40. Yet after the lock-up period ended, the price fell below $20 within months. Investors who bought at $40 on the first trading day lost 50% within a year.

Information Asymmetry: Insiders Know More

All financial markets suffer from one fundamental inequality: information asymmetry. Insiders (those who work at the company) know more than new investors. The CEO knows that sales have dropped in the last month. The CFO knows that a major client (responsible for 30% of revenue) is considering moving to a competitor. But this information is not disclosed in the offering prospectus because it does not necessarily qualify as "material" information by the regulator’s definition.

This information gap creates a serious risk for new investors. They see appealing figures in the prospectus, observe a growing revenue trajectory over the last three years, and believe the company is a great long-term investment. Yet insiders may know that this trajectory is unsustainable.

A classic example is the IPO of Theranos in 2015 (although technically it wasn’t a traditional IPO via an exchange, the principle is uniform). CEO Elizabeth Holmes claimed that the company had developed a revolutionary medical device capable of conducting thousands of blood tests from a single drop. Investors believed her, pouring billions into the company, which attained a valuation of $9 billion. Later, it was revealed that the technology did not work at all, and results were fabricated. Investors lost nearly everything.

Conflicts of Interest: Whose Interests Align?

Within IPO, several conflicts of interest exist, often invisible to the new investor. The investment bank has an interest in a high price (because its fees are higher — 7% of $100 billion is more than 3% of $50 billion). The CEO is interested in a high price (since their stock options become more valuable, and they may receive a larger salary). Early investors (venture capitals) want a high price (because they will receive more money upon exit and can brag to their own investors).

However, these interests may work against those of new investors. A new investor desires a fair price — not too high, not too low, a price that reflects the company’s real potential. When all other IPO participants are interested in a high price, the new investor is on the opposite side of the deal.

This does not necessarily imply overt fraud or criminal activity. All participants can operate within legal bounds, revealing no hidden information and filing no false reports. But interests simply do not align. The structure of the IPO is set up in a way that favors insiders rather than new investors.

Red Flags: How to Identify a Risky IPO

There are several warning signs that should alert beginners to tread cautiously when analyzing an IPO and deciding whether to invest money. An excessively high valuation is the first and foremost danger sign. If a company is valued during the IPO at 50 times its annual earnings (P/E ratio = 50), whereas competitors are valued at 20 times earnings, it could serve as a red flag. This indicates that investors expect unusually high growth in the future, and if that growth fails to materialize, the price could drop by 50-70%.

The second red flag is a loss-making company with vague promises. If a company presents an IPO while still operating at a loss (losing money), and the investment bank asserts that it will become profitable "in a few years" or "once it achieves scale," exercise extreme caution. "A few years" often turns into "never" or "much longer than anticipated." There are numerous examples, ranging from Uber (still unprofitable years post-IPO) to Lyft, Slack, and other "unicorns."

A third flag is poor management and a lack of experience. If a CEO is young (20-30 years old), inexperienced in business, and this is their first role as CEO of a large company, this raises red flags. If they are young and present an enticing story without substantial proof that they can deliver long-term promises, it represents a considerable risk. For instance, Elizabeth Holmes (of Theranos) was young, attractive, and persuasive, having renowned leaders on her board, yet failed to produce the promised product.

A fourth flag is an unusually high fee charged by the investment bank. If an investment bank charges 7% in fees (as opposed to the usual 3-4%), it could indicate difficulty selling the IPO and its need to be more aggressive in marketing. This may signal that demand is weaker than reported publicly.

A fifth flag is the use of unique metrics instead of conventional financial indicators. If a company employs its metrics for measuring success ("active users," "burn rate," "EBITDA without discounts" etc.), take heed. The company can manipulate these measures to present itself in a more favorable light. Examples include social media platforms that report "active users" instead of real monetization and profitability, or cloud companies that refer to their own "burn rate" instead of standard GAAP profits.

Part 5: A Practical Guide for Beginners

How to Buy Your First IPO: Step-by-Step Instructions

If you’ve decided to try investing in an IPO, here is a step-by-step guide that applies to most developed markets and can be utilized by beginners.

Step 1: Choose a Broker

Not all brokers offer access to IPOs for retail investors. Major brokers like Charles Schwab, Fidelity, E*TRADE, TD Ameritrade typically provide such access. Check with your broker to see if they offer IPO access for clients of your size. Remember that retail investors often receive less prominent IPO shares; the hottest and most sought-after IPOs go to large pension and investment funds.

Step 2: Gather Funds

The minimum amount to purchase an IPO typically ranges in the hundreds of dollars; however, it's advisable to have a few thousand for diversification. Remember that you won’t be able to use these funds for several months (as they will be frozen in your pre-IPO request), so utilize money you don’t need for immediate expenses.

Step 3: Submit a Request

When an IPO of interest arises, you submit an application through your broker. You indicate how many shares you wish to purchase and at what price (or you agree to the price set by the investment bank based on the evaluated demand).

Step 4: Wait

After submitting your application, wait for several days. The investment bank compiles all requests from all brokers, determines overall demand, and establishes the final IPO price. If you are "selected" to participate in the IPO, your broker will freeze funds from your account.

Step 5: First Trading Day

On the following morning, the shares begin trading on the exchange in the usual manner. You see an opening price (it may be significantly higher than the offering price). Now you can sell shares (if the price is high and you wish to realize a quick profit) or hold them (if you believe in the long-term potential).

Investment Strategy: Long-Term vs. Speculative

There are two primary strategies for investing in IPOs: long-term investing and short-term speculation. Speculation involves buying shares on the first trading day, anticipating a rapid profit. For instance, you buy at $25, wait half an hour, see the price at $35, sell, and enjoy a 40% profit. This is commonly referred to as flipping. It works when the IPO is overvalued on the first day and demand is high. However, it could also lead to losses if the price drops quickly or doesn’t rise at all.

Long-term investing involves purchasing the IPO because you believe in the company for 5-10 years. You’re not concerned about the price on the first trading day. You’re focused on the price and the company’s profitability in 5 years. This is a more conservative strategy but historically tends to yield better results over decades.

For beginners, long-term investing is recommended. Speculating requires expertise, experience, a willingness to lose money quickly, and emotional resilience. If you're a novice, focus on understanding the company, assessing its fair value, buying at a fair price, and holding the shares. It may not be the most exciting in the short term, but it works and builds long-term wealth.

Part 6: Real-Life Examples and Lessons

Top IPOs: Success Stories That Inspire

Microsoft (1986): From Software to World Dominance

Microsoft went public in 1986 at $21 a share. The company was young (founded in 1975), but it had a clear strategy to become the primary software supplier for personal computers beginning to fill offices and homes. Founder Bill Gates was young, yet his vision was clear and long-term.

Today, a share of Microsoft is worth approximately $400 (depending on the timing). Investors purchasing shares in 1986 and holding them for 35+ years have enjoyed returns exceeding 19,000%. Yet remember, in 1986, it was impossible to predict that Microsoft would dominate for over 30 years and remain one of the most profitable companies globally.

Amazon (1997): A Loss-Making Company That Became an Empire

Amazon went public in 1997 at $18. The company was losing money, and it was unclear if it would ever become profitable. Founder Jeff Bezos rebuffed investors and analysts demanding profitability, arguing that long-term growth and market capture were more crucial than short-term profits. Many skeptics deemed it madness.

Today, a share of Amazon costs approximately $3000 (depending on the moment). This leads to over 16,000% returns across 25+ years. It exemplifies how long-term vision and willingness to endure losses triumph over short-term skeptics and analysts. Amazon evolved from merely an online bookstore to a cloud service provider and one of the most influential companies globally.

Google (2004): An "Overvalued" Company That Exceeded Expectations

Google went public in 2004 at $85. The company was profitable at the time of its IPO (which is rare), yet people and analysts debated the high price. Many financial experts publicly stated that Google was overvalued and its price would drop. Analysts recommended "sell."

Today, a share of Google is valued at around $2600+. The returns amount to more than 3000% over 20 years. Google illustrated that even if an initial price seems high during the IPO, a good company dominating its market and possessing unique value can easily justify and exceed the most ambitious expectations.

The Worst IPOs: Lessons From Failures

Uber (2019): Expectation of a Miracle, Reality of Losses

Uber went public in 2019 at $45. The company was culturally popular; everyone thought it would become the next Amazon or Google, the next great success story in the stock market. Investors were filled with optimism and FOMO. However, on the first day, the price fell below the offering price and continued to decline for months and years.

The primary reason: Uber burned through cash extremely quickly, losing money each quarter. Investors began demanding profitability, but the company failed to meet those demands despite repeated promises. Today, Uber trades around $70-80 (yielding just 55-78% returns over 5 years), far less than what people expected in 2019. This indicates that popularity and hype do not guarantee a successful IPO or profitability.

WeWork (2019): An IPO That Never Happened

WeWork was poised to conduct an IPO in 2019 and become the next unicorn, valued in tens of billions. However, at the last minute, the IPO was canceled. Multiple reasons contributed: the level of losses was extraordinarily high (the company lost money on every office lease), CEO Adam Neumann faced numerous conflicts of interest (he owned buildings that WeWork leased, creating significant conflicts), and the business model was questionable (merely subleasing office space, without anything revolutionary or innovative).

If this IPO had occurred, investors would have lost significant amounts of money. It shows that even at the last moment, an IPO can be canceled if risks and issues become too evident.

Pets.com (2000): A Classic Internet Bubble Example

Pets.com went public in 2000 during the internet bubble at $11 per share. The company sold pet products online. On the first day, the price increased to $14 due to FOMO (fear of missing out on the internet opportunity). But the company was burning through cash rapidly, had no clear path to profitability, and faced high delivery costs with low average purchase sizes.

Within a few years, the company went bankrupt entirely. Investors who bought at $11-14 lost 100% of their money. This serves as a classic example of how a speculative bubble and collective hype can lead to collapse and complete capital loss.

Conclusion: How to Start Investing in IPOs Wisely

IPOs are powerful tools that allow companies to grow quickly, hire top talent, invest in innovations, and enable investors to accumulate wealth by participating in growing companies. However, they can also mislead novices who do not understand the hidden risks and conflicts of interest.

If you wish to invest in an IPO, do so slowly, with small amounts (that you can afford to lose), and only in companies that you truly understand and believe in for the long term (5-10 years). Do not follow the herd, and avoid falling into FOMO (fear of missing out). Conduct your own research. Read the offering prospectus from beginning to end, analyze financial reports for several years, look at competitors and their metrics, and assess fair value. And remember: the best investments are often those that nobody expects and that the market undervalues. Microsoft in 1986 was not an obvious choice for investors. Amazon in 1997 seemed absurd to conservative investors. Google in 2004 was thought to be overvalued by analysts. Yet all of them justified and exceeded expectations for long-term investors who believed in their potential and had the patience to hold their stocks for decades.

An IPO is not a gamble if approached wisely. It presents an opportunity to become a shareholder in a growing company at the early stages of its development as a public corporation. Use this opportunity wisely, analyze, think long-term, and you may create significant wealth.