Its the end of the year, so you have had almost a full 12 months to analyze your investment performance for the year.  This is a great time to see what aspects of your investment plan worked or to create an investment plan if you do not have one.  One of the most important things you can do as an investor is to understand your performance; for each account,  for each investment class (i.e. stocks, bonds, cash equivalents), and for individual investments.

You may or may not have payed attention to the performance of your investments during the year, either way an end of the year check is needed.  Several things can affect the performance of an investment including;  company performance related to analyst opinions, changing interest rates, and also the fees associated with certain investments.  By looking at the performance of your individual investments you can see which of your investment choices are worth keeping and which may need to be removed from your portfolio.  By looking at investment performance on an account level you will be able to see where there may be a need to evaluate your investment plan due to results different than what was anticipated.

Risk Tolerance
The end of the year is a great time to see if your risk tolerance has changed.  If your risk tolerance is different you will need to analyze your investments to make sure they are acceptable given your new tolerance for risk.  

Investment Plan
Ask yourself if you have a true investment plan.  If you do have an investment plan how is it working for you?  If you do not have an investment plan consider getting one before years end.  The stock market, and investing as a whole is not something you just want to put money into with no plan, unless you are ok losing your funds.  Your investment plan should consider things like: which accounts to have, what amount of funds should be contributed, and what investments are suitable.  After getting an investment plan remember it is good to periodically evaluate if it is working for you.

Taking the time to do research will make you a better investor.  So many things happen in the stock market that can affect the value of your investments, so great research will help you understand the changes in your portfolio.  Many investors pick assets for the wrong reasons, and do poorly, research can help.  Whether hoping to analyze an individual stock, understand how mutual funds work or become an options trader, tons of resources are available.  

Using Account Features
Your broker (place where you invest) may have a ton of account features which can simplify your investing.  One feature, automatic contributions allows you to send funds to your accounts so you do not have to worry about forgetting.  Automatic investments will actually place a set amount of funds in a preselected investment.  A watchlist  will allow you to get alerts from the investments you follow when certain conditions are met (like a specific price being reached).  Check with your broker to see what account features are offered and which ones may be beneficial to you.

Getting Help
Everyone could use help investing, the question is how much.  For a self-directed investor help may just be showing them which tools are available.  For other investors help could include assistance with tools, research or an investment plan.  Consider whether or not you need help, and seek it if you do.  In addition to fee based help, some brokers offer free investment planning.  Even outside of talking to your broker, chances are pretty good that you know someone who is great at investing.

What is an IPO?

The term IPO stands for an initial public offering.  In layman’s terms it means the first time a private company will sell shares to the public.  Doing an IPO or going public is a great way to raise capital for firms and has many benefits.  Below are some of the benefits to a company that participates in an IPO.

  1. Costs involved with IPO are much less than the cost of borrowing.

  2. Company does not have to worry about repayment like borrowing, because capital raised does not have to be repaid. 

  3. Several factors not related to the company like market conditions, negotiation, and analysis can lead to a higher offering price which means the company will raise more capital.

  4. The firm is able to enlist the support of a large group of investors who give their money in return for a future return on investment.

Details on an IPO

Once a company makes the decision to do an IPO, it must register the offering with SEC by filing a registration statement, which is usually done with Form S-1.  That registration statement will get reviewed by the staff of the SEC to make sure it has the necessary disclosure documents.  The review process is not intended to determine the merits or appropriateness of an IPO and at its conclusion the registration statement becomes effective and the company may continue with the IPO. 

Since the company participating in the IPO used to be privately held there will not be as much information available as the companies who are already public, but research is still important.  Any information filed during registration, and any subsequent amendments will be on file with the SEC in their EDGAR database at www.sec.gov/edgar/searchedgar/webusers.htm.  Other important information that can influence the buying decision of the company going public can be found in the prospectus.  There are many important sections in a prospectus to consider, below are some that are highlighted in the SEC’s Investor Bulletin titled Investing in an IPO.

Requirements to buy an IPO

Before you can participate in an IPO you have to answer a series of questions to determine if you are a qualified investor.  FINRA (Financial Industry Regulatory Authority) has rules that would prohibit a “restricted person” (individual associated with the financial services industry) from purchasing shares of a new issue.   More information about FINRA Rule 5130 which places restrictions on the purchase and sale of Initial Equity Public Offerings can be found at http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=4894&print=1.  The broker where you invest will also have certain requirements to participate in an IPO as well.  Typical requirement include minimum account balances which could be $250,000-$500,000.  Another way to qualify could be based on trading volume.  Most if not all companies will also have a flipping policy in place.  Flipping is a term which means to sale shares bought in an IPO within a certain amount of time after purchase on the open market.  If you are caught engaging in flipping it could exclude you from participating in future offerings. 

Should you buy an IPO?

That’s not a simple question at all.  Investing involves risk, and a company with no previous investment track record to examine is a huge one.  As an investor you really have to look at the fundamentals that the company is based on and see why you want to hold that investment.  On one hand the company could be wildly successful and the appreciation in share price could be significant if held for the long term.  A prime example of a stock appreciating is GOOGLE, who this year marked its tenth year since its IPO by being up over 1,000%.  On the contrary to success after IPO you have companies like Groupon, down over 60% in price after its IPO.   An investor can always wait until after the IPO to purchase shares in the market, but this has risks also since the underwriters can support the trading of new issues in the first few days of trading.  Once a company begins officially trading on one of the stock exchanges (New York Stock Exchange or NASDAQ) there is no telling how high or low the stock will be from the offering price (price at which you were allowed to get shares of the IPO).

One of the most important things that you can do as an investor is to understand what you are putting your money into.   In the words of Warren Buffet, “Never invest in a business you cannot understand.”  With tons of investment options available, the question becomes what’s appropriate for you.  Some options for investments include things like: stocks, bonds, mutual funds, commodities, options, and currencies.  Take for example the complexity of Options Investing, for the importance of knowing what you are invested in.  On a basic level you have call and put options.  A call option gives a buyer a right to purchase shares of an underlying security at a specific price for a certain time period.  A put option gives a buyer the right to sell shares of an underlying security at a specific price for a certain time period.  From there Options Trading can get even more intense, and not understanding the dynamics could lead you to owe thousands of dollars you do not have.

Trend Investing

With Investing following the trends could be disastrous for your portfolio.  What is right for Investor A may not be right for Investor B.  Everyone has different investment timeframes, and tolerances for risk.  There are no guarantees with investing, and no way to predict how long your trend investment will be hot for.  Deciding to invest in something the vast majority of people are investing in is not bad if done for the right reasons.  For example, consider a newsletter that has 30 thousand followers.  All 30 thousand individuals will receive the same advice about the investments recommended or reviewed.  The question you always have to ask yourself is how an investment fits into your overall portfolio.

Doing Your Research

Doing good research is critical to being a better investor.  Today people look at reviews for everything from movies to dentist appointments.  Places like Yelp, and Tripadvisor put reviews right at your fingertips.  The same due diligence that people put into finding activities and services can be applied to investments.  Some things that can be reviewed to make informed decisions include: analyst opinions, financial statements, news, ratings, and returns.  One of the best places to begin your search for answers is the Research Page of your broker.  Other helpful links are below.