What to know about IPOs as a retail investor.

<div class="block">John Jannarone, Editor-in-chief at IPO Edge, joined &#39;Stretching Your Dollar&#39; to provide a few tips on navigating IPOs as a retail investor, particularly as ARM Holdings makes its debut on the Nasdaq with the biggest offering of the year.</div>

Stretching Your Dollar

Stretching Your Dollar: What to Know About Investing in an IPO

Today, chip maker arm holdings makes its debut on the NASDAQ in the biggest IPO of the year. In fact, the stock is so hot that investor demand reportedly surpassed the number of shares by a factor of 10. But buying into an IPO can be risky, especially for people at home investing on the site. So for tips on navigating ipos as an investor, a retail investor, I'm joined by John General editor in chief of IP O Ed John, thanks for joining. Thanks Chris. Good to be back. It's been a bit of a dry spell on IPO but to be back on set with you fabulous. Well, the biggest IPO we mentioned of the year. So a very timely topic today and we know with this arm IPO, for instance, big institutional hedge funds institutions, they usually get first dibs. What does that mean for the retail investor at home? Well, this is great timing because we just saw the first print about 10 minutes ago, I think it was $56. So as you point out at price at the top of the range, way over subscribed to the tune of 10 times demand beyond what the available shares were. So if you were one of those institutional investors, you were pretty happy right now because the stock of about 20% last I saw was about $60. But you're right. Regular investors don't typically get access to IPO shares. You can try and if you're a really good customer, you can put a request in. But for the most part, if you want to own this, you're going to have to buy it when it starts trading as in right now or the next few days. So to break this down, John, it seems like you're telling me the price differential can be quite drastic in terms of what the average person might pay versus what some of these large institutions can get in at. That's right. So I mean, I think that this opening, they call it a pop. So it opened about 10% higher. That wasn't crazy though. I mean, you know, when you're talking about a couple of years ago during IPO fever, you would see 80% pops on the first print now, you know, the market is still open, we got a few hours to go. But that's right. Investors should realize that if you buy it right now, you're paying actually 20% more than the institutions did. OK. Good to know. Of course, when it comes to ipos, we know some of the recent ones of late, there haven't been many we should note, but for those that have actually debuted, we have seen such stellar price performance. Why is that? Well, part of the reason I think is there was a bit of a frenzy during COVID actually, which shocked a lot of us, we were all locked up, but the IPO market just kept roaring. And I think there was a lot of, you know, there was a lot of low quality stuff out there and even now investors are a little bit shaken up by that. And so the market has not been receptive to, let's say early stage companies that don't have a good track record. When we're looking at arm, arm is different, arm is big profitable and it has a very extended track record. You know, we can talk more about Arm, but it's a different animal from a lot of these smaller deals which are just inherently riskier. Well, let's talk about a company. Most people probably know maybe Arm isn't necessarily a household name, but I'm sure Instacart for instance is right. And Instacart is also preparing a forthcoming ipo probably within the next few days, even weeks in terms of timing, this one actually underwritten by so far. Does that give the average investor any leg up? You know, it does, this is a really interesting story. Let me just back up real quick. The valuation that they're talking about pricing that that is about a quarter of where they were raising money. A couple of years ago. So, you know, coming in now looks a lot smarter than, you know, having bought it a couple of years ago. But as far as weta investors go sofi is one of about 20 underwriting banks now. So I said if you are an active trader and if you have a record of investing in ipos in the past, we'll get you some shares. But remember, there just aren't that many to go around, right? You got all those other big banks which are largely catering to institutions, but you're right. If you have a SOFI account and you've been investing regularly, you can probably get some shares. And I think that this valuation is interesting. I think it was overblown a couple of years ago. You remember that crazy time, you know, was trading, you know, 100 times sales and so on. So things things have, I think that's good to say. So in business, obviously much different than arms. Every company that debuts has its own unique business and profit model per se. Yeah, when it comes to a company like Instacart, what are some of the factors that investors should consider when deciding whether or not this is the right investment. So look, I think that when, you know Instacart was raising money a couple of years ago, the only thing anyone cared about was growth, that's just not the way the world is now. So what you need to hear from companies, Instacart or any other tech company is a path to profitability if they're not already there yet. And some real proof that they're taking steps to do that. I mean, you might remember Lyft and Uber, that was a problem with them. I mean, I think I was talking with you on your show three years ago about those guys and it was the same problem. They said, well, we don't know we're going to be profitable. And even then the market wasn't that thrilled with it. So that's what you need to ask is, you know, is this, is this company going to make money in addition to growing another factor that goes into ipos is the lock up window. So investors might see some volatility, the average investor might see some whips saw action within about the 1st 12 months or so, explain what can happen that an investor should prepare themselves for. So something that I would advise any investor to do and it's not that hard. You know, a Google search can probably find it for you if you don't want to take to the sec filings is to see when that lock up period ends. And in many cases, you have shareholders who have owned a stock privately for years, maybe decades and they are not allowed to sell. I mean, this is done on purpose and the market remains orderly. So, you know, with arm for instance, today, you know, Softbank Masayoshi Son outfit sold some stock. But for the next I've got to check, it's either six or nine months, you know, no more is allowed to be sold. But it's very smart to keep an eye on that because you can have tremendous selling pressure. And by the way, not to get too much into the w but this is the problem with direct listings, there's no lock up on those. So, you know, with the regular way ipo, there's always a lock up. Ok. Our resident ipo editor in chief. Well, the IPO edge editor in chief I should say. But our expert down here on the floor of the Stock exchange, John, I appreciate it.