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?
An Initial-Public-Offering (IPO) allows a private company to raise capital from public investors and from that moment it officially becomes a listed company, giving anyone the opportunity to buy its shares and become a shareholder.
The day of the IPO is very important because it is a unique day and obtains a significant increase in visibility and for that day, and in the following days, it becomes almost “fashionable” with all the newspapers and not only that talk about it, even though the company in question is relatively small. Then when there are the IPOs of famous companies as happened a few months ago with Airbnb (ABNB) and Coinbase(COIN)or a few years ago with Facebook(FB) andSnapchat (SNAP) for months they talk about it and during the day of the IPO a very high amount of company shares are traded.
All these attentions always attract a considerable amount of speculators, who have no interest in the fundamentals of the company or to make a long-term investment, but are only interested in very short-term speculation, facilitated by very high volatility during the day of the IPO.
Collapse in the months following the IPO
In the weeks or months following the IPO, a company’s price often falls from the initial IPO price. This may be due to the fact that the price at which the company is listed on the public market is too high compared to its real value. Furthermore, if this initial price increases in the days / weeks following the IPO due to the speculation we talked about earlier then the price starts to get too high and at some point it tends to move back towards its true value. This leads to huge losses for those who invested during the IPO.
An example of what has just been said can be found in the “DrawDown Post-IPO – Avoided” column in the table at the beginning of the article which shows the collapse of the share price in the months following the IPO of some important companies, from -35% of Ferrari (RACE) in 1 month to -80% of Snap Inc (SNAP) in 21 months. Both companies are now priced much higher than the IPO, but they had a lot of trouble in the first few months.
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 you will find an article called “New All-Time High” almost every day containing the best companies that reach a New All-Time High at the end of the trading session.
This type of article will include the companies that made the IPO a few months / years ago and that reach a new all-time high (subject of the strategy described in this article), but also the companies that continue to grow and reach new all-time highs, as did Facebook during the years in which it grew by + 780%.
On October 21, 2020, an article was published within the BullDude.com Membership called “New All-Time High: 5 Stocks to Watch” where it was reported that Snap Inc (SNAP) had just reached a New All-Time High (Phase 2 of the strategy) after it plummeted by 80% in the first months post-IPO (Phase 1 of the strategy).
As you can see from the image above, Snap Inc (SNAP) has grown by over 100% in 4 months since the day the article was published.
Within the same article mentioned above, BullDude.com Membership subscribers were also informed of the new all-time high reached by Pinterest Inc (PINS) which had the same characteristics described in this article.
As you can see from the image above Pinterest Inc (PINS) has grown by over 80% in 4 months since the day it hit its New All-Time High.
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:
New All-Time High
When a company’s stock price continues to rise and reaches a new all-time high it means it has reached the highest market value in its history. For example, Apple Inc (AAPL) currently has a market value of over $ 2 trillion, but before it can reach it, it has continuously recorded new all-time highs over the past few years, rising from a value of 1, 10, 100, 1000 and now over $ 2 trillion.
For this reason, reaching a new all-time high is very important because it means that the company is continuing to grow as a market value.
So knowing the companies that have just hit a new all-time high is very useful information.
Precisely for this reason within the BullDude.com Membership you will find every day an article called “New All-Time High” containing the best companies that have just reached a new all-time high and are therefore continuing to grow reaching market value never reached previously.
In the image above you find an example of this type of article called “10 Stocks to a New All-Time High | May 5” published on May 5, 2020 here on BullDude.com where the payment giant PayPal (PYPL) was reported because it had just reached a new all-time high of $ 125 per share (exceeding the red line which represented the previous all-time high). Since that day the company has continued to grow reaching $ 210 in the following 4 months (+ 68%).
In mid-February 2021 PayPal (PYPL) reached a price of $ 308 per share (+ 145%).
Resistance and Potential Breakout
Resistance is a price level within a positive trend in the stock price that stops growth and does not allow for continuation, so it is an obstacle.
In order for the stock price to continue growth it must overcome this obstacle, i.e. reach a price level above the resistance.
So knowing which companies have just overcome this hurdle and are ready to continue growth is very useful information.
Precisely for this reason within the BullDude.com Membership you will find every day an article called “Resistance Breakout” containing the best companies that have just overcome this obstacle.
In the image above you find an example of this type of article called “6 Stocks Breakout a Resistance Today” published on 9 May 2020 here on BullDude.com where the Chinese company Pinduoduo (PDD) was reported because it had just overcome a resistance (black line) and in 2 months the price increased by 80%, going from $ 54 to $ 98.
In mid-February 2021, the price of Pinduoduo (PDD) reached $ 212 per share (+ 280%).
In addition, every day within the BullDude.com Membership you will find an article called “Potential Breakout” containing companies that have not yet overcome this obstacle (Resistance) but have a chart structure that increases the chances of doing so in subsequent trading sessions.
In the image above you find an example of this type of article called “Potential Breakout: 4 Interesting Stocks To Watch” published on June 18, 2020 here on BullDude.com where the company Fiverr International Ltd. (FVRR) was reported because it showed a good chance of overcoming the resistance to $ 73 (black line) in subsequent trading sessions. In fact, it did it in just 5 days and the price went from $ 68 (on the day the article was published) to over $ 122 (+ 80%) in the next 2 months.
In mid-February 2021, the price of Fiverr International Ltd. (FVRR) reached $ 335 per share (+ 380%)
Moving Average Breakout
Moving averages are one of the most used tools in trading because they allow you to identify the presence of a positive or negative trend based on the position of the stock price with respect to it. One of the most important moving averages is the one calculated as the average price of the last 50 trading sessions and if the price is above it (or below) it indicates the presence of a medium-long term positive (or negative) trend .
So knowing which companies have just moved from a negative to a positive trend (so the price has moved above the 50-day moving average) is very useful information.
Within the BullDude.com Membership you will find an article called “Moving Average Breakout”every day containing the best companies that have just entered a positive trend, ie the price has moved above the moving average.
In the image above you find an example of this type of article called “4 Stocks Breakout a Key Moving Average Today” published on April 22, 2020 here on BullDude.com where Snapchat (SNAP) was reported because the price had reached $ 17 exceeding the moving average of 50 days (black line). Since that day, Snapchat (SNAP) has grown by over 55% in the next 3 months to over $ 26.
In mid-February 2021, the price of Snapchat (SNAP) reached $ 73 per share (+ 330%).
Buy The Dip
The Buy The Dip is a particular chart conformation that allows you to take advantage of the temporary drop in the price of a financial instrument to be able to make an investment at a lower price than in the previous days / weeks.
Generally, the Buy The Dip can be exploited when the financial instrument is within a positive medium-long term trend and for various reasons (including not directly related to the instrument but linked to general market collapses) it suffers a temporary drop in price before resuming growth following the positive underlying trend.
Although investing in a financial instrument in a positive trend at a lower price than in recent weeks has a lower risk than one in a negative trend and on the maximum price, there is still a risk on this chart patterns that concerns the possibility that the temporary drop lasts more than expected and the underlying trend changes from positive to negative.
So this chart patterns in order to exist needs the following components:
Medium-long term positive trend that in this type of article is identified when the current price is higher than the average price of the last 200 trading sessions (black line in the charts).
Temporary drop in price which in this type of article consists of a minimum drop of at least 10-15% from the maximum reached in the previous days / weeks.
So knowing which companies have just taken a break from a strong positive trend is very useful information.
Precisely for this reason within the BullDude.com Membership you will find almost every day an article called “Buy The Dip” containing the best companies that have just showed this chart patterns.
In the image above you will find an example of how many temporary drops in price there were during the positive trend of Apple Inc (AAPL) from May 2020 to October 2021 period in which it grew by over 100% reaching a market capitalization of 2, 5 trillion dollars.
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