What are the Pros and Cons of IPO Investing? Why I Don't Jump In Even with an 80% Win Rate

When you start stock investing, you will hear about "IPO investing" at least once.

"If you win, the win rate is high,"
"It's easy to make a profit by selling at the opening price,"
"An investment easier to win than the lottery."

Many people have likely become interested after hearing such stories.

In fact, looking at past data, IPO investing is an investment method that boasts a high win rate.

However, just because the win rate is high does not mean it is an investment that can be recommended to everyone.

This time, I will explain in an easy-to-understand manner what IPO investing is, as well as the pros and cons of IPO investing.

What is IPO investing?

IPO is an abbreviation for

Initial Public Offering

.

In Japanese, it is called "shinki kabushiki koukai" (new stock public offering).

Simply put, it is making it possible for general investors to buy and sell shares of companies that previously only a few people could hold.

For example,

Shares that the founder held at 10 yen per share can become worth 1,000 yen due to the listing.

Therefore, an IPO becomes a major opportunity for asset formation for founders.

It is not rare for founders of famous companies to become multi-billionaires or even hundred-billionaires.

And "IPO investing" performed by investors refers to

an investment method that aims for profit by purchasing shares at the offering price before listing and selling them at the opening price on the first day of listing.

Pros of IPO investing

1. Relatively high win rate

The biggest appeal of IPO investing is its high win rate.

Past data shows that if you purchase at the offering price and sell at the opening price, about 80% of cases result in a profit.

Of course, it is not 100%, but it can be said to be a significantly higher success rate compared to regular individual stock investing.

2. No loss even if you don't win the lottery

IPO investing is basically a lottery system.

You cannot purchase shares unless you win.

However, on the flip side, if you don't win the lottery, you won't lose any money.

For investment beginners,

"Profit if you win, no loss if you lose"

is a point that will feel very attractive.

3. You can participate with a small amount

Many IPO stocks can be applied for with amounts ranging from several tens of thousands to over a hundred thousand yen.

Since you can participate without large capital, it can be said to be an investment that is easy for beginners to try.

Disadvantages of IPO investing

So why are there investors who do not actively engage in IPO investing even though it is so attractive?

There are several reasons for this.

1. The winning probability is extremely low

The biggest hurdle in IPO investing is the winning probability.

For popular IPOs, it is not rare for the winning probability to be less than 1%.

In other words,

It is a world where you might win once if you apply 100 times.

That is the kind of world it is.

Some people open accounts at multiple brokerage firms and continue to apply every time to increase their chances of winning.

However,

・Account management
・Password management
・Fund transfers
・Application procedures

and other tasks take more time and effort than you might imagine.

(2) It does not guarantee a profit

Although IPOs have a high win rate, they are not a guaranteed win.

Depending on the economy and market conditions, the initial price can sometimes be lower than the offering price.

Especially during bad market periods, the performance of IPOs as a whole declines.

It is dangerous to be overconfident just by looking at the "80% win rate" figure.

(3) The profit amount is not as large as you might think

There is an image that you can make a fortune if you win an IPO.

However, in reality, even if you win, the number of shares allocated is limited.

While you can make a profit ranging from tens of thousands to hundreds of thousands of yen,

it is not easy to consistently earn life-changing amounts every year.

Rather,

・Managing multiple accounts
・The hassle of applying
・Gathering information

when you consider the time spent on these, it may not always be efficient.

IPO investing as viewed by Noriyuki Hayashi's Investment Club

At Noriyuki Hayashi's Investment Club,

"long-term wealth building over short-term gains"

is emphasized.

IPO investing certainly has the potential to generate profits.

However,

・Will you acquire investment skills?
・Will your earning power grow?
・Will it lead to future wealth building?

It is also important to think from these perspectives.

For example,

Learning index investing.

Increasing income through a side job.

Acquiring qualifications or skills.

These efforts become assets for yourself into the future.

On the other hand, IPO investing,

"I hope I win"

also has aspects where the element of luck is strong.

Of course, it is fine to try it as an experience.

However, spending too much time on it alone is worth reconsidering.

Valuing your greatest asset: time

Money is not the only thing that is truly important in investing.

Time is also a valuable asset.

If you are going to spend dozens of hours trying to make a few tens of thousands of yen through IPO investing,

you could use that time to learn a side hustle.

Deepen your investment knowledge.

Hone skills that lead to increased income.

Those are also options.

The wealthier a person is,

instead of thinking about "how much profit can I make,"

they think about

"what is the return per hour."

That is what they consider.

Summary

IPO investing is an investment method where you purchase shares of a newly listed company at the offering price and sell them at the opening price to aim for a profit.

The advantages are:

・A relatively high win rate
・You can participate with a small amount of money
・There is no loss even if you don't win the lottery

that is it.

On the other hand,

・Low probability of winning
・It takes time and effort
・Profit amounts are limited
・It is difficult to accumulate investment experience

these are the disadvantages.

At Noriyuki Hayashi's Investment Club, we do not deny IPO investing itself.

However, time is limited.

It is important to invest while considering whether it will lead to your own growth and future asset formation, rather than just looking at immediate profits.

Let's steadily increase our assets while continuing long-term investment and self-investment.