Chapter 4 · IPOs, FPOs and rights shares
What listing day really looks like
The first day of trading is the least informative day, and the worst one to make decisions on.
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After allotment, the shares are listed and trading begins. For a heavily oversubscribed par-priced issue, the first trades are usually well above the issue price, because the people who wanted in and missed out are now buying from the people who got allotted.
Why the first days are unreliable
- There is no trading history to compare against.
- A large number of holders received a small allotment and want to sell it immediately.
- Circuit limits can lock the price at its band before a real market forms.
- Volume in the first sessions reflects allotment churn, not a view of the business.
Chapter 5 is about reading the price screen properly, which is exactly what you need before making that judgement.
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