What Retail Investors Should Know about Newly Listed IPOs

Author: Lee TG

The contents of today's Star Biz section and last Saturday's Bursa Market Chat had provided me some new knowledge about investing in IPOs. Here are the new things I did not know before, and this also explains why most of the IPOs are traded below their IPO price.


1. Every IPO has a promoter who may be having shares of the IPO
2. SC Listing Requirements specifies a 6 month moratorium on company owners and pre-IPO investors, that is, they cannot dispose their shares before the expiry of 6 months moratorium counting from the day of listing. But note that knowledgeable investors like institutional investors may dispose their shares before the promoters or insiders sell theirs.
3. This is my assumption: all IPOs are priced at a premium over the fair value, and the fair values are likely overstated.


A newly listed company KSTAR Sports, saw a spike on 29-30/11/10 to as high as 1.06, even touching RM1.21 before a drastic share sell down to a low of 45 sen closing at 46 sen on 6/12, a hefty 57% decline in only 5 trading days. Without doubt, many retailers or inexperience chartist lost money, because the price was marked up very fast, and the distribution also started very fast.

From the price and volume chart, and with the understanding of the two facts in (1) and (2), traders may actually able to find opportunities to trade short term profitably for IPOs and avoid losing badly.


If we analyse point 1 and 2 together with the facts we see in KSTAR Sports chart, we would probably able to link what we can see in the chart with point 1, 2 and point 3. I would let readers think about what I mean here as it takes a lot of time to write about what I mean. Understanding what I mean may open some opportunities to make short term money, and to avoid losing on trading of newly listed IPOs. But a good interpretation of the chart of KSTAR should warn us of the traps of MM. I have drawn out the the points of mark up before MM distributed their shares. The distribution activities may have ended with such heavily publicised news on this case. But this is a good case for learning about IPOs and VSA.


The lessons here: be wary of IPOs, and most important of all, know how to read and interpret charts