2 Ways How to Buy IPO Stocks before First Day of Trading
IPOs are always an exciting time. The VCs who funded the startup since inception get to cash in, the employees of the startup get to see their options not expire worthless, and institutional investors get to buy pre-IPO shares before the first day of trading. Retail investors are usually stuck buying shares of IPOs after they begin trading, and the price has typically popped. Here’s the average “pop” over the past 10 years:
So how can retail investors buy IPO shares before the first day of trading? Here are two ways.
Loyal3 is a platform we reviewed before that we use on a regular basis, not only to buy IPO shares before they begin trading, but also to buy shares for no transaction costs in companies such as Google, Apple, McDonald’s, Intel, and Microsoft. Here’s how well you would have fared by buying each IPO offered on Loyal3 and selling the shares the day they began trading:
While you may think that everyone flips their shares the first day of trading, 98% of investors on Loyal3 hold their shares beyond Day 1. The last IPO shares offered on the platform were for First Data. There’s no saying which IPOs will be offered on Loyal3 going forward or when, but when an IPO is offered, you can buy pre-IPO shares with as little as $250.
Update 01/1/2018: Loyal3 no longer exists. They went kaput. Should other firms with “free trading” like Robinhood be concerned? They certainly don’t seem to be at all.
Motif Investing is a platform we reviewed before, and one which we use to make diversified investment in all kinds of themes like 3D Printing, Synthetic Biology, and Solar. The premise is that you can create a “motif” which contains up to 30 stocks, choose the weightings in your portfolio, and then trade the basket of stocks for just $9.95 per trade. As if the platform wasn’t genius enough, Motif Investing just announced late last year that they have partnered with JP Morgan and will begin offering pre-IPO shares to retail investors with no transaction costs. Essentially you can buy shares of JP Morgan led IPOs before they begin trading, just like the big institutional fund managers on Wall Street. While Motif Investing has yet to offer their first IPO, we’re eyeballing Editas Medicine, the gene-editing company that just filed for IPO.
You can read all about Editas in this article along with our analysis of the S-1 filing. We can’t say if Editas will offer pre-IPO shares on the Motif Investing platform, but we do know that JP Morgan is leading the Editas IPO. This means that there is a strong likelihood pre-IPO shares of Editas could be offered on the Motif Investing platform. The best thing to do would be to click this link and open an account for free with no deposit required so you’re ready in case Editas pre-IPO shares are offered. You can invest in IPOs with no transaction fees and using as little as $250. Aside from Editas, there could be many more exciting IPOs on offer from JP Morgan in the future. Here’s a look at the last 10 IPO filings led by JP Morgan:
While we’re passionate about disruptive technology investing, in practice we’re very conservative investors. We like strategies like dividend growth investing (DGI) and use Loyal3 to buy shares monthly in companies that have a proven track record of paying increasing dividends. At the same time, we want to generate alpha any way we can. If there is a high probability that we can make a return by buying pre-IPO shares before they begin trading, and then flipping our shares on the first day of trading, we’re there. We used this strategy to realize a one-day return in GoPro of +40%, and now we’re glad we flipped those shares on Day 1, as GPRO has lost -65% since their first day of trading.
The first gene editing IPO from Editas is one we were waiting for, and is sure to be one of the most exciting IPOs of the year in a technology that is very risky but could potentially be a game-changer for genetically inherited diseases, many of which have no treatments.
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