In the back
Often regarded as a way to make a quick buck, buying into IPOs
can see you nursing significant losses if you don’t do your research,
writes AltRetire’s John Blowers
Float like a butterfly/
stung like a bee
I
n India, investment platforms
now ask you to complete a
paper application form to
open an account and there
exists a veritable army of employees
whose sole purpose is to move up
and down the country collecting
these documents from prospective
investors. The application forms
are around 60 pages long, which
makes the online process in the UK
look extremely efficient. Here, we
can begin investing in around 10
minutes, whereas in India it can take
up to a month.
Why? A few years back an Indian
photographer, who specialised in
passport photos, was found guilty
of opening thousands of trading
accounts (using the photos of his
clients in his fake applications),
so he could buy into a string of
initial public offerings (IPOs). These
flotations were limited to a certain
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amount of money per person, but
the outcomes were always the same.
Investors were doubling, trebling or
even quadrupling their investments,
such was the
enthusiasm for these high-growth
businesses in a high-growth economy.
The photographer was investing all
the money he could lay his hands on
and putting it through thousands of
trading accounts, so he could multiply
his gains. I believe he is still in jail and
the regulator took such a dim view of
this strategy it introduced draconian
levels of due diligence and identity-
checking surrounding the opening of
online investment accounts.
If you see Sid…
There was money to be made from
IPOs in the UK back in the 1980s as
utility companies
and nationalised
businesses
were
privatised,
and more
recently in the
dotcom boom
when companies
that promised to
The winners of the
dotcom era have – and
will continue to – change
the world
revolutionise entire industries came to
market via a flotation.
We won’t dwell on the dotcom crash,
but although many of the investments
in those companies came to nought,
the winners have – and will continue
to – change the world.
One of the UK’s first platforms,
Interactive Investor, floated on the
London and Nasdaq markets in 2000,
raising more than £70m. At one point
it was trading at a valuation of more
than $1bn, but it didn’t last long and
the shares plummeted along with the
rest of the market. I remember it well.
I worked there!
Enough nostalgia. Back to the here-
and-now and it’s happening again.
Not only do platforms promote IPOs
of all shapes and sizes, but they are
starting to float themselves.
I wanted to clarify this foggy area
in two ways. First, is investing in
IPOs via a platform a good idea, and
second, should I invest in a platform
business itself at flotation?
There have already been two platform
IPOs so far in 2018, while investment
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