【summary】
IPO secondary investment is an investment method in which newly listed (IPO) stocks are bought and sold on the market after they are listed. Unlike primary investment, where you acquire shares at the public price through an IPO lottery, you can buy and sell them on the market if you have a brokerage account.
However, IPO stocks have rapid price fluctuations immediately after being listed, and are prone to large profits and losses in a short period of time. If you jump on something just because of its theme or topicality, you can easily end up grabbing a high price.
In this article, we will summarize the differences between IPO investment and IPO secondary investment, typical strategies, advantages and disadvantages, and points that beginners should check. This is not a recommendation to buy or sell individual stocks, but an investment education article to help you understand the risk structure of IPO stocks.
What is IPO secondary investment?
An IPO (initial public offering) is an event in which a company is listed on the stock market for the first time.
Many investors imagine "IPO investing" as buying stocks won in an IPO lottery at the public price and selling them at the initial price after listing.
However, in reality, aiming for stock price fluctuation after listing,
IPO secondary investment
There is also a method.
Secondary means "secondary market".
In other words, what is IPO secondary investment?
*Instead of buying stocks won in the IPO lottery
- Buy and sell on the market after listing
Refers to investment style.
While you can participate without winning the lottery, it is more difficult because you are directly affected by price movements immediately after listing.
Difference between IPO investment and IPO secondary investment
| Item | IPO investment | IPO secondary investment |
|---|---|---|
| Purchase timing | Before listing | After listing |
| How to participate | Requires lottery win | Can be bought and sold on the market |
| Funds tied up | May occur during book building or purchase application | Same as normal stock trading |
| Main aim | Difference between public price and initial price | Price movement after listing |
| Price movement | Limited until initial price formation | Very large |
| Difficulty | Lottery luck is a big factor | Buying and selling decisions and risk management are important |
IPO investment requires winning, but IPO secondary investment can be placed in the market if you have a securities account.
However, "able to participate" and "easy to win" are two different things. Immediately after listing, the board is thin, the price range is wide, and short-term funds flow in and out all at once. It can be dangerous for beginners to enter without deciding on the rules.
Why do IPO stocks move so much?
Companies that have just been listed have not yet been evaluated by market participants.
Therefore, stock prices fluctuate greatly depending on the following factors:
- Growth expectations
- Thematic nature
- Earnings forecast *Comparison with published price
- Initial price level
- Market environment
- Selling pressure from venture capital and major shareholders
- Short-term funds for individual investors
especially,
- A.I.
- Semiconductor *SaaS
- Universe
- Bio
- Defense
- Inbound
Stocks that are close to popular themes, such as stocks, tend to attract short-term funds.
On the other hand, stocks with too high expectations may have little room for upside once the initial price becomes too high. The difficult thing about secondary IPOs is that you need to look not just at whether the company is good or not, but also at the extent to which those expectations are already factored into the stock price.
Typical strategies for IPO secondary investment
1. Initial price break strategy
This is a method that aims for the timing when the price exceeds the initial price.
The idea is simple.
初値を突破
↓
買い需要が継続
↓
上昇トレンド発生を期待This is a popular method among short-term traders, but it is also prone to deception.
There are cases where the price exceeds the initial price for a moment and then stalls immediately. If you jump without looking at whether the trading volume is accompanying it or whether it is absorbing the selling at the top, it is easy to grab the high price.
2. Buying on the spur of the moment strategy
This is a method that targets a situation where a stock that has skyrocketed after being listed has corrected itself due to profit-taking selling.
上場
↓
急騰
↓
利益確定売り
↓
反発狙いIt is easier to reduce the risk of grabbing a high price than jumping right after the initial price.
However, it is necessary to determine whether the adjustment is a ``temporary push'' or ``a decline due to a collapse in supply and demand.'' IPO stocks also fall quickly, so it is risky to enter them without a stop-loss rule.
3. Check supply and demand after lock-up is lifted
A lock-up is a contract that prevents major shareholders from selling their shares for a certain period of time.
Once the lockup is lifted, major shareholders and venture capital investors may sell. Therefore, some investors look at supply and demand before and after the cancellation.
What I want to check is
- Cancellation conditions
- Termination date *Number of stocks covered
- Venture capital holding ratio
- Is the market able to absorb selling pressure?
is.
The release of the lockup is not an event that will necessarily lead to a decline. Even if a stock has been warned about selling pressure, if it actually absorbs the selling pressure, it may rebound as if all bad news has run out.
Advantages of IPO secondary investment
Can be bought and sold on the market
There is no need to win the IPO lottery.
Once listed, they can be bought and sold on the market just like regular stocks.
Large price ranges can occur in a short period of time
Stocks with strong growth expectations and themes can rise significantly in a short period of time.
However, this price range can be a loss as well as a profit.
Good compatibility with thematic investment
IPO stocks are easily linked to hot themes in the market.
Short-term price movements can be large in themes that tend to attract funds, such as AI, SaaS, semiconductors, space, and biotechnology.
Disadvantages of IPO secondary investment
Price movements are very violent
IPO stocks can move more than 10-20% in a single day.
It rises quickly, but it also falls quickly. If funds are withdrawn in a short period of time, the buying board may become thinner and the stock may be sold at a lower price than expected.
Poor track record
Companies that have just been listed have little disclosure record as listed companies.
There are limited sources for determining financial results habits, management's ability to explain, trends in forecast revisions, shareholder return policy, etc.
Competition with institutional investors and short-term funds
IPO secondaries involve not only retail investors, but also professional investors, short-term traders, and algorithmic traders.
It moves quickly, and emotional buying and selling can easily put you at a disadvantage.
Easy to grab high prices
For stocks that are bought solely on the basis of their popularity, there may be too much expectation at the initial price or immediately after the stock is listed.
Even if the company is good, if you buy it at too high a price, your investment performance will be poor. For IPO secondary, it is necessary to look at not only the company's growth potential but also its market capitalization and valuation.
Common mistakes
Jump at the moment you get the initial price
It is dangerous to buy only with the expectation that the stock will go up.
Immediately after the initial price is formed, short-term funds, initial price selling, and supply and demand readings overlap. This is a time when prices move so fast that it is difficult for beginners to make calm decisions.
No stop-loss rule
IPO stocks can fall rapidly, so if you don't have a loss cut rule, you can easily be fatally injured.
Before you buy, you need to decide at what price you want to withdraw and how much loss you can tolerate.
View only themes
It doesn't necessarily mean that things will go up because they're AI-related, or that they'll grow because they're SaaS, or that they're strong because they're semiconductors.
Thematic nature is a trigger for capital inflow, but ultimately we look at sales growth, profit margin, competitive advantage, market capitalization, and supply and demand.
Don't see lockups
Immediately after listing, selling pressure from existing shareholders will affect the stock price.
If you purchase a stock without checking the lock-up conditions and major shareholder composition in the prospectus or listing-related materials, you may be subject to unexpected selling pressure.
Check points for beginners
If you want to participate in IPO secondary, you should at least decide on the items to check.
| Check items | Contents |
|---|---|
| Sales growth rate | Is growth continuing |
| Profit | Is it in the red or in the black? If it's in the red, when is it likely to become profitable? |
| Market capitalization | Is it small-cap or large-cap stocks? Are growth expectations factored in too much? |
| Lockup | Cancellation conditions, cancellation date, number of shares eligible |
| Trading volume | Is there active buying and selling, and can you sell when you want to sell |
| Public price and initial price | Is the initial price too high? |
| Major shareholders | Ownership ratio of VCs and funds |
Just by looking at this item, you can significantly reduce the risk of buying based on momentum alone.
Who is suitable for IPO secondary investment and who is not suitable for it?
Suitable for people
- I like short-term trading
- You can see the market price every day
- You can thoroughly cut your losses
- You can see volume and board
- Don't buy emotionally.
People who are not suitable for this
- Focus on long-term savings
- Not good at price movements *Cannot cut losses
- Less time to watch market prices
- Easy to buy due to theme and SNS atmosphere
Anyone can place an order for IPO secondary, but it is not an investment suitable for everyone.
For busy people or those who focus on long-term savings, it is better to not force yourself to participate in this project, which will help stabilize your overall household finances.
summary
IPO secondary investment is an investment method that aims to make profits by taking advantage of large price movements after listing.
You can participate from the market without having to draw a lottery, but the risk is also higher. Immediately after a stock is listed, expectations, supply and demand, thematic nature, and short-term funds all overlap, and price movements become quite wild.
There are four things beginners should check:
- Decide on stop loss rules
- Do not reflexively jump to the initial price
- See sales growth rate, profit, market capitalization
- Check lock-up and major shareholder structure
IPO secondary investment looks like a ``dream investment.'' In fact, there can be large price ranges.
However, the key to success is rules, not expectations. If you want to participate, you need to decide where to stop your losses before you consider your profits.
source
- Japan Exchange Group “[List of newly listed stocks (stocks)]” (https://www.jpx.co.jp/listing/stocks/new/index.html)
- Japan Exchange Group “Listed company information”
- J-FLEC “IPO｜Time to invest”
- Japan Securities Dealers Association “[Status of distribution of stock certificates to individual customers upon initial public offering]” (https://www.jsda.or.jp/shiryoshitsu/toukei/shinkikoukai/index.html)