The deal with IPOs

I read a friend's blog some time a few days ago, and she was mentioning someone asking her to invest in IPOs. Currently, it seems that IPOs are gold in Singapore, and we saw two recent IPO launches hit the jackpot recently.

CHINA XLX FERTILISER LTD.
Offer price = S$0.77
1st day closing price = $1.20
Premium = 55.8%

COSMOSTEEL HOLDINGS LIMITED
Offer price = S$0.26
1st day closing price = $0.69
Premium = 165.4%

There you go! What easy money eh? Haha, that's what I thought too initially. Let's say I buy 20 lots, i.e. 20000 shares, of Cosmosteel:

Initial capital = 20,000 x $0.26 = $5200
Sell on 1st day = 20,000 x $0.69 = $13800
Profit = $8600!!!

Whoa! I thought, instant riches! Haha, if that's what you think you can do with IPOs, and plan to sink $20,000 into them to turn into $50,000 in one day, take a look at this.

Take a look at the IPOs' shares offered to the PUBLIC. 6,000 lots for XLX and 1,000 lots for Cosmosteel. The rest of the millions of shares? Sold to institutional and high-networth individuals (read: millionaires...) Yes, so for the average singaporean, you are fighting about another 30,000 investors for 1,000 lots or so. How many will you get? You have a better chance of queing up for Hello Kitty dolls at Macs or for donuts at Donut Factory during peak hour. Lucky people may get one or two lots. So that's how the rich get richer. They get all these sort of preferential treatment. Haiz.. poor students like us? Try for IPOs, but don't bank your profits on them. =)

Short Term Strategy Details

Although with 35% of my money in short-term - not the highest portion of my 3 prongs - I am choosing to spend the most time with it because of two things.

ONE: It generates the best returns for my money.
TWO: It equips me with investments knowledge and skills which I believe will help me out in future should I pursue a career in Banking & Finance.
ONE STONE, TWO BIRDS =)

Short-term wise, I choose to to make money through the stock market. The STI (Straits Times Index), i.e. the Singapore Stock Index has been surging like a bull on drugs these 12 months, so much so that it has gained over 1000 points from under 2500 mid last year till over 3600 now!!

Straits Times Index (Mid-2006 to Mid-2007)

My goodness, the recent IPOs have made a buckload of investors multi-millionaires overnight. Before you jump right in and start smacking stocks left, right and centre, let me pour a bit of cold water. Remember 1999? The dot-com boom? Yeah, felt good didn't it? Year 2000? The dot-com bust? Felt like crap didn't it? Now's the boom, so everybody feels good. When is the bust gonna come? Tomorrow? Next week? Next month? Next year? I am aware that this euphoria will not last, so I'm not jumping head-in to the stock market, but slowly picking strong stocks to buy into rather than chasing the flavors of the day.

Jacking stocks wantonly will never be a credible short term plan, because just as intensely stock prices rise, they can drop just as easily. Just look at the top gainers and losers at the end of each day. Even in this stock market, some stocks can lose over 40% of their value in a single day! At this stage, most of us beginners will NOT be able to handle the fluctuations, and I find it no point to put my money in based on luck. Might as well bet on soccer... (well, I do, but $10 here and there only for fun hehe..)

Currently I am building up my fledging portfolio with the limited money pool I have, but it has been growing pretty well over the past few weeks. I buy my stocks based on fundamental analysis - i.e. judging the financial fundamentals of the companies - and try to balance between high-risk shares and moderate-risks shares. I also find dividend-paying stocks pretty attractive, and am currently holding a couple of them. =) Overall I am confident of getting a 15% return by end-August, especially since one of my dividends will pay me a few hundred quid. So this would mean I only have to pump up another 10% for the rest of the period from September till June next year to hit my 25% target. If I exceed it, all the better! =P

Currently I am also researching the warrant market for any good buys, but I don't plan to make any moves yet because I am still learning more about warrants. Till I comprehend them fully, I shall stick to shares for now.