A topic of discussion has always been the convenience of investing as soon as a company is listed on the stock exchange (IPO – Initial Public Offering) or at a later time.
In this article we will talk about a strategy that in the past has made it possible to fully exploit the incredible price increase of many companies in the months / years following the IPO, without being exposed to the very high drawdowns that occurred in the first months, reducing the risk.
In the table above an example of some companies where the strategy has made it possible to benefit from the increase in the share price (Price Increase – Exploited) completely avoiding the drawdowns that occurred in the first post-IPO months (DrawDown Post IPO – Avoided).
Don’t worry, in addition to explaining the strategy you will find information on the tool to use to know almost every day which companies can exploit it.
What Happens During an IPO?
Strategy: Wait for the All-Time High following the IPO
To explain the strategy we will take as an example only one of the companies (Facebook Inc) present in the table at the beginning of the article because the theoretical concept is easily applicable to all the others.
Facebook Inc (FB): from -65% to +780%
The strategy consists in identifying the companies that have had a collapse in the stock price (Phase 1 – The DrawDown) in the months following the IPO (as we have seen previously) and then wait for the recovery of the price until the first All-Time High is reached (Phase 2 – First All-Time High), or the one higher than the day of the IPO.
Don’t worry, in addition to explaining the strategy you will find information on the tool to use to know almost every day which companies are reaching an All-Time High post-IPO.
Let’s see the example applied on Facebook Inc (FB).
Phase 1: The DrawDown
The IPO of Facebook Inc (FB) took place in May 2012 with a market value of approximately 60 billion dollars. Despite the huge size, as of September 2012, just 4 months later, the share price was worth around 65% less than the IPO price, so those who invested on the first day suffered a heavy loss, despite Facebook having always been a very important company.
The drawdown we have talked about represents the first characteristic that the companies subject to this strategy must have.
Phase 2: First All-Time High post-IPO
About 12 months after the lowest point of the collapse, Facebook’s share price had recovered all the loss of the first 4 months and precisely on 5 August 2013 it reached its first All-Time High following the IPO.
This event represents the second characteristic that the companies subject to the strategy must have.
The other companies in the table at the beginning of the article have exactly the same 2 phases that Facebook went through and all are now at prices well above the IPO. The same Facebook in the following years has come to grow by over 780% from the day it recorded its first all-time high and obviously in the following years it continued to set new records continuously.
How Do You Know Which Companies Hit an All-Time High post-IPO?
In the Chart Patterns category within the BullDude.com Membership, in addition to the “New All-Time High” article described above, you will also find articles containing 3 other important chart patterns every day: Resistance / Potential Breakout, Moving Average Breakout and Buy The Dip.
Below you will find a better explanation of the 4 types of Chart Patterns included in BullDude.com Membership:
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