IPO Investing Strategy: 6 Ways to Minimise Risk (2025)

Investing in an IPO (Initial Public Offering) often appears very attractive. Who would not want to purchase shares at the initial offering price and watch the price soar on the first day of listing? However, the reality is not as rosy as it seems. Without a proper IPO investing strategy, it comes with significant risks.

For new investors, success in the IPO market is not about simply following the crowd. It requires a realistic understanding of risks and opportunities. Below is a comprehensive guide and proven strategies for you to begin IPO investing with minimum risk.

What Is an IPO Stock? Beginners who want to learn more can read here: What Is an IPO or Initial Public Offering?

Conduct Due Diligence First

The first step in any safe IPO investing strategy is thorough research. Never apply for an IPO simply because the company name is popular or trending on social media.

As a wise investor, you need to:

Read the Prospectus: Consider this the company's 'textbook'. Focus on the business model, cash flow, profit track record, and total debt.
Seek Independent Analysis: Read reports from licensed brokers or independent financial platforms to get an honest picture of the company's performance and prospects.
Know the Competitors: Understand what the company does and who their main competitors are. Is their market broad or limited?
This is the most important foundation so that you know where your money is going, rather than investing blindly.

What Is a Prospectus? Read more here: Introduction to IPO Prospectus: A Complete Guide for New Investors

Do Not Just Follow the Hype — Understand the Real Risks

One of the biggest mistakes new investors make is falling for the hype. Large-scale promotions often increase investor interest, but this can become a trap.

When formulating your IPO investing strategy, you need to be wary of these phenomena:

Pop & Drop: The price surges dramatically on the first day due to hype, then plummets after early investors take profits.
Revaluation: Many IPOs record high gains at opening, but eventually fall below the offering price once the market reassesses the company's true valuation.

Remember, hype or popularity is not the same as a company's true value (intrinsic value).

Read more about IPO Risks here: Stock and IPO Risk Analysis Techniques for Smart Investors

Entry Strategy: Do Not Go All In at Once

As a newbie, capital management is key. Do not immediately invest all your capital on the first day the IPO is listed.

Use the following money management techniques:

Buy in Stages: Consider buying a small portion first, perhaps half of the allocated capital.
Wait & Observe: Watch the market movement over the following days or weeks. This helps you avoid buying at the "peak price" caused by early speculation.
Post Lock-up Opportunity: Often, prices become more stable and attractive after the lock-up period (the selling restriction period for early investors) expires.

Set Your Goals & Exit Plan

Before pressing the 'Buy' button, you must have an Exit Plan. An effective IPO investing strategy requires discipline, not emotion.

Ensure you establish these three things before investing:

Profit Target: At what price do you want to take profits?
Stop-Loss: What is the maximum loss you are willing to bear if the price falls?
Time Horizon: Is this a short-term investment (flipping) or long-term?

This plan serves as an "emergency brake" to control your emotions so that you do not panic sell when the price drops or get greedy when the price rises.

Learn more about Trading Plans: Trading Plan: 3 Essential Things You Must Understand

Diversification: Do Not Put All Your Capital in One IPO

IPOs can be highly volatile (prices change rapidly and drastically). To reduce the risk of major losses, practise diversification.

Allocate Your Capital: Do not use 100% of your savings on a single IPO counter.
Balanced Portfolio: Combine IPO investments with established company shares (blue chip), index funds, or other investment instruments.

If one IPO does not deliver the expected performance, gains from other investments can offset that loss.

Control Your Emotions and Avoid Pure Speculation

The main enemy of new investors is FOMO (Fear Of Missing Out). Many suffer losses because they chase prices that have already risen sharply out of fear of missing out.

To strengthen your IPO investing strategy:

Make decisions based on data and analysis, not on fear or greed.
Ignore social media posts that promise quick profits without substance.

Read more emotion-related articles here: Investment Psychology: 13 Emotional Traps That Can Destroy Your Portfolio

There Are No Shortcuts to Profit

IPOs are not a get-rich-quick scheme. They are a legitimate investment opportunity, but they must be approached with knowledge and caution. The best IPO investing strategy is to think long-term, buy at fair value, and always have an exit plan.

Stay disciplined and continue learning before putting your hard-earned money into the stock market.

Frequently Asked Questions (FAQ)

What are the key strategies to reduce IPO investment risk?

Key strategies include conducting due diligence on the company's prospectus, not merely following the hype, setting a stop-loss limit, and diversifying your portfolio so that you do not depend on a single IPO.

Are all IPOs profitable on the first day of listing?

No. Many IPOs fall below the offering price on the first day. Investors need to be prepared with an exit plan and should not assume all IPOs will definitely rise.

How do new investors read an IPO prospectus?

Focus on the business model, cash flow, profit track record, total debt, and who the company's main competitors are. Also read independent analysis from licensed brokers.

How much capital is appropriate to invest in a single IPO?

Ideally, do not allocate too much capital to a single IPO. Diversify your investments and only use money you can afford to lose to reduce overall portfolio risk.

Understanding IPO strategies is an important step before you begin investing in the Malaysian stock market.

Open your CDS account through Register Mplus CDS Account to start applying for IPOs and investing on Bursa Malaysia.

Just starting to learn about stocks? Download the Free Stock Basics Ebook to understand the fundamentals of stock investing before you begin.

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