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Chapter 15: IPO investing strategy | Flipping

The previous chapter dealt with the risks of buying a company’s stocks on the listing day. The suggestion was to wait till the lock-up period ceases and then buy the shares. That’s because stock prices tend to go down around this period.

However, people who are lucky enough to get shares during an IPO often decide to sell them on the listing day. So, let’s look at why people do that.


The practice of selling a ‘hot’ IPO stock at a high profit within the first few days of listing is known as flipping.

Traders follow this practice because over the years, expert analysts and stock market researchers have observed that IPO returns on listing day tend to be higher than one-, two- or even three-year returns in most cases. This is specially the case for IPOs that come out at the end of a bull run.

This may make you believe that the best strategy is to offload all your IPO stock on the listing day itself. This strategy is especially attractive for traders who want to make quick profits on the listing day.

That said, listing gains are not guaranteed. That’s because sometimes the IPO is overvalued or the demand for a company’s stock is not as high as expected. Also, stock prices get closer to its actual value within a few days. Therefore, it is imperative to be careful if your sole purpose of investing in an IPO is to flip and make a quick buck.


As we have said in previous chapters, one must invest in shares only if the long-term prospects of the company look good.

But there are times when flipping all your shares could be the most profitable move. This is advisable when the stock gains 70%-80% in the pre-market session. It is best to exit with such a high return, as historically the IPO may not reach the same heights for a couple of years.

This strategy will protect you from any future losses as public scrutiny could pull the share price down in the early years.

A quick recap

Flipping is when you sell off your shares within a few days of the company making its market debut.

Although, it is always better to invest from a long-term perspective, there are certain situations which justifies people to follow a flip strategy.

What next?

There is no guarantee you may receive the desired number of shares in case an IPO is oversubscribed. However, the following chapter talks about a few tricks that can help increase your chances.