The Perils of IPO Investing

An important lesson in why investing in IPOs can be wrought with issues

Renart the fox, Ernest Henri Griset, 1869, sketch in the book Renart by Michel Rodange (1872).

First, a quick welcome to all new readers who joined after hearing my recent “interview” with Jason and Jeff on Investing Unscripted. I look forward to us all sharing this journey together.

There a lot of people out there who are not comfortable with investing in nanocap companies or IPOs. I don’t know if riskier is the right word to describe it because legitimate businesses are worthwhile investments, but finding them is incredibly rare. I think it’s better to say that with the effort you need to put into finding worthwhile companies, the juice isn’t worth the squeeze. 

I can’t argue with that logic. 

The one advantage of investing in these tiny and less established companies is that you can find mispriced assets. Of the 103 companies that are “sub-working capital” stocks, 78 of them are micro and nano-cap companies. 

Making this kind of investment work requires a lot of detective work. That can mean going beyond reading the investor prospectus and the company’s website. 

So, I thought it would be an excellent exercise to go through a recent IPO to show how things may not be as they appear and why it’s so important to do the extra leg work before making any snap judgments. So let’s dig into a nano cap IPO, building materials company Inno Holdings. We’ll explore why everything in the investor prospectus may not be what it seems and why you need to have your guard up with IPOs and small companies.