The IPO Market Is Hot. What Should Investors Know?
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Here's your money briefing for Wednesday, November 24th. I'm J.R. Whelan for The Wall Street Journal. The IPO market is hot. So far this year alone, more than 900 companies have gone public, raising nearly $300 billion. Typically, Wall Street's biggest investors have been on the short list of groups that can buy shares before the public does. But now more companies are opening that door a little wider for individual investors.
They showed that they had the cash, they had the interest and the education to want to go in and buy up certain names.
And while the rewards from getting in on IPO shares can be high, so can the risks. In a moment, we'll check with our markets reporter, Corey Dreebush, about red flags that smaller investors need to watch out for before and after a company's shares hit the public market. That's after the break.
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This year, the number of publicly listed companies in the U.S. rose above 4,000 for the first time in more than a decade. And a big part of that is the white-hot initial public offering, or IPO market, where companies have been going public at record valuations. What's also rising is the number of companies giving individual investors an opportunity to buy in as they go public. But what risks do smaller investors and IPOs face? Here to walk us through it is WSJ Markets Reporter Cori Dreebush. Hi, Cori.
How big is the current IPO surge and who is benefiting?
Thanks for being with us.
Of course. Thanks for having me.
So, you know, Corey, the IPO market is on fire now, but it wasn't always the hot ticket on Wall Street. And for a long time, retail investors had virtually no access to that market, right?
Yes. For many years, at least over the past decade or so, the retail investors, if they wanted, the individual investors, if you wanted to buy an IPO, unless you have a brokerage account with one of the banks on the deal, you really don't have a shot at getting at the IPO price. You would have to buy the next day once it starts trading, and then you are subject to how it trades. And even if you did have a brokerage account, In general, IPOs, when they allocate or when they assign shares to investors in the IPO, maybe 10% would go to individual investors, but rarely any more than that.
Yeah, now we're seeing retail investors getting more of a seat at the table. More companies are carving out shares for the little guy in addition to the larger blocks of shares for the bigger investors. Why are they doing that?
Well, it sort of has to do a lot with just the trend we've seen all year of individual investors becoming a more powerful voice in the stock market. Think of even just this past winter with all the meme stocks and individual investors showed that when they banded together, they could move markets and inflict some painful losses on big investors. And they showed that they had the cash, they had the interest, and the education to want to go in and buy up certain names. So brokerages like Robinhood and SoFi took advantage of that and they started rolling out platforms to offer individual investors access.
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