There are different reasons companies go public, but all IPOs have one big thing in common; they go public to raise capital.  Initial Public Offerings (IPOs) are how companies debut on the Philippine Stock Exchange.  Prior to going IPO, companies are considered private companies, as they don’t have shares available to the general public trading on the stock market.  

Many investors view IPOs as an opportunity to get in “early” and invest in a companies that may have future potential.  Sometimes companies that IPO do great things, and sometimes they don’t perform very well.  So, what are some factors you should look for before you invest in companies that IPO on the Philippine Stock Exchange?  

Below are three tips to help you invest in IPOs in the Philippines!

Tip 1 – Decide if you will invest pre-IPO or post-IPO

There are two ways you may be able to invest in an IPO.  The easiest and most common way is to invest in companies that may have future potential when it starts trading on the Philippine Stock Exchange.  For example, Converge (CNVRG) went public on the PSE on October 26, 2020.  You could have bought and sold shares of CNVRG through your BDO Securities online trading account on that day.

But, what if you wanted to get in on the IPO BEFORE the stock started trading on the stock market?  

You could have done this by subscribing to the IPO through BDO Securities before the company even started trading.  

Not every IPO will be available with BDO Securities as a pre-IPO subscription, but for those IPOs that BDO Securities does offer, you should decide if you want to invest in the pre-deal, or just wait until the company goes public.

Tip 2 – Do your research

Not all IPOs perform well, so you should do your homework before you invest.  One way to research an IPO is by reading the prospectus.  This is a document including the material information potential investors should know regarding the company.  However, for many novice investors, the prospectus can be long and hard to understand.  If you have trouble reading the prospectus, you may be better off reading objective research reports about the IPO.

BDO Securities provides objective research for investors that can help determine whether an IPO is worth investing in.  Not every IPO is covered by the BDO Securities analysis, but for those that we do cover, our research can be very helpful.  We may cover information such as potential target prices for the IPO, competitor analysis, and potential growth prospects for the company. 

You can find research reports on upcoming IPOs in your BDO Securities research portal.

Tip 3 – Manage your risk and expectations

Whether your investing in an old established company or a new IPO, you should continue to use a proper risk management strategy.  

First, if you’re a long-term investor, you should keep a diversified portfolio of stocks.  This means you shouldn’t add 100% of your money into an IPO stock (or any stock).  This is too concentrated as all of your risk is in one company.  By owning multiple different company stocks you spread your risk between those companies.  So only add a portion of your portfolio into an IPO stock.  

Next, if you are a short-term trader and you decide to trade the stock once it begins trading on the stock exchange, you should use proper risk management as well.  This involves important risk measures such as having an allocation maximum, risk per trade, win/loss ratio, stop loss, etc.  If you’re trading an IPO stock, make sure you use these risk management measures.  

When it comes to IPOs, deciding if you will be investing in the pre-IPO or post-IPO is a good start.  You should also do your research by reading the prospectus and/or objective research.  And, as always, when investing you should continue to use proper risk management strategies when investing in IPOs.  

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