Share Market News / Do not make these mistakes before investing in IPO, otherwise you may incur huge loss

Share Market News: Every time a big IPO comes in the market, the atmosphere becomes heated. There is a flood of tips on WhatsApp, noise of GMP in Instagram reels and people in the neighborhood are found saying that this will double the money! But the question is, do the stock market giants do this? The answer is, absolutely not. Warren Buffett, known as the giant of investment, says that the stock market is a game in which there is no need to hit a shot on every ball. According to him, one should take a thoughtful step before investing in an IPO. Let us understand how to invest in an IPO based on Warren Buffett's advice.

1. Understand the business, do not be influenced by the name alone

The first mistake while investing in an IPO is to run after the hype. Warren Buffett's advice is: Do not invest in a business that you do not understand. Many times people apply without knowing the company just because it is trending. But IPO is not a lottery ticket. It is like buying a stake in a shop in your street, will you invest without knowing the profit?

2. Avoid insider moves

IPO is like a game of cards, in which the other person knows every card—only you don't. The promoters and early investors of the company have all the inside information, while the common investor has only a glossy brochure. Buffett advises that "if you are unable to understand who is the weakest player in a game, it may be you." So, definitely read the DRHP (Draft Red Herring Prospectus) and understand how many shares the promoters are selling.

3. First look at the track record, then invest

Buffett prefers to invest in companies whose profit and performance have stood the test of time. New companies may come with hopes, but they do not have a track record. You will remember the example of Paytm, the noise that was there at the time of the IPO, the decline was equally rapid later. Before investing, see whether the company is making profits or just making promises.

4. Choose what you know

If a new technology startup is coming up with an IPO and you don't understand its technology, then stop. Buffett believes that whatever you don't understand has hidden risks. You should invest in companies from sectors whose business model and demand you understand. Like FMCG, banking, retail etc. This rule applies not just to investments, but to every decision in life.

5. Focus on brand value and monopoly

Buffett likes companies that have a strong monopoly or moat—that is, a specialty that differentiates them from competitors. Every new company claims that it is unique, but does it really have something that is not easy to copy? If not, then that company cannot be called a horse for the long race.

6. Don't be tempted by the profits on listing day

IPOs are often designed in such a way that the promoters benefit, not the investors. Warren Buffett says, price is what you pay, value is what you get. Bankers set prices in such a way that more money can be extracted. In such a situation, if the company is overvalued, then there will not be much profit left for you. It is better that you wait for the right company at the right price.

7. Monitor after listing

Buffett's real mantra is patience. He does not invest in every IPO, but tracks the company for some time after listing. You too make a post-IPO watchlist. Watch the company's profit and management for a few quarters. If everything is fine, then only invest.

Be a horse for the long race, stay away from shortcuts

India's IPO market is like a T20 match, fast, exciting and uncertain. But Warren Buffett's strategy is like a test match, patience, thinking and the power to stand the test of time. If you also want to stay in this game of investment for a long time, then adopt the principles suggested by him. Understand the business, take your time, and don’t assume everything that glitters is gold.