Initial Public Offerings

I read an interesting article on Bloomberg yesterday (click here to read) about Australian IPOs and how the odds of losing big from an Australian IPO is uncomfortable large. Bloomberg analysed 112 IPOs in Australia worth more than $50 million over a period from 31 Dec 2008 to 31 Dec 2015 and found that 17 out of 112 IPOs resulted in a greater than 50% loss.

Bloomberg chart

Considering that the ASX 200 went from 3,722 to 5,296 points (a 42% gain) during this period, the average returns from these IPOs are pretty ordinary. If you invested in the ASX 200 index, you would have been in the 2nd highest return bracket (above) but exposed to much much lower risk (your risk return profile would be significantly lower).

To me buying into an IPO is a bit like buying at the markets in many parts of Asia where you have to haggle and bargain. I always try not to buy at these markets as I’m a bad haggler and I know I can never really “win” (however low I get the price down to) due to information asymmetry. The sellers knows the wholesale price, the price which other sellers are selling it and how much he sold it to the last Aussie tourist so what are the odds of me actually winning?

Sounds a lot like the IPO market ….



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