Treat Stock Market newcomers with caution
Buying into the excitement over companies’ Initial Public Offerings may not be a golden ticket, warns wealth manager Brewin Dolphin.
Research from the group shows that, of the seven companies that debuted on the UK stock market in the last twelve months, four are currently trading below their flotation price and only two have left investors sitting on significant gains.
“The hype surrounding the Royal Mail float may encourage people to think that buying shares when a company floats is a sure-fire way to make money,” warned Tim Walker, Divisional Director and Head of Office Brewin Dolphin Exeter: “Our experience along with our research show that people need to be far more careful than this.”
Royal Mail shares, which floated at 330 pence per share, have given their investors a gain of over 50 per cent since July last year, prompting many retail investors to feel that they missed out on profit as individual allocations were limited.
However, investors in Saga, Pets at Home and Infinis Energy are all nursing losses. Infinis shares were down almost 20pc from their flotation price at the time of writing.
Merlin Entertainments, owner of Madame Tussauds, has seen its shares rise 18pc since its debut in November last year, but Tim Walker warned that this was the exception rather than the rule.
“Investors should be careful not to get their fingers burnt,” he said. “Be aware that companies always float for a reason. One reason could be to maximise profit for the company’s current owners and as with any share investment, you should consider how well your own interests will be served by the purchase.”
