With much attention, Facebook recently offered an Initial Public Offering or IPO. Throughout the process, the media commonly used financial language many investors did not understand. I received multiple questions from clients about IPOs.
An initial public offering is the first offering of stock from a private company. Stocks, also called equity, provide investors the opportunity to own a portion of a company and participate in guiding the direction of the company through proxy voting. Most popular IPOs are only available to very wealthy individuals or institutional investors.
Many investors think of participating in an IPO as a quick way to make a large return. This stems from the time in the late 90s when “dotcom” IPOs could not lose. After the tech bubble burst in the years following, investors became careful investing in Initial Public Offerings. Investing in an IPO does not guarantee a profit. After the media hype leading up to Facebook’s IPO, the stock finished nearly flat for the day.
