IPOs - Speak The Basics (Very Good Reading) (11)

If you don't have access to a computer --


or your access is too slow for downloading a prospectus (which is an extremely long document) --

you can also obtain a prospectus by calling the investment banks that are involved in selling the shares of an IPO.

Calling the company will also work.


The fine print:



A confusing read Warning:

A prospectus is not an easy read.

Written mostly by lawyers, they are laden with confusing jargon.

In addition, the tone of these documents is decidedly negative.


Companies have to be completely honest about all of their warts in order to avoid future lawsuits.


Thus, bullish statements are often followed by cautionary disclaimers, and there's an entire section titled "Risk Factors" dedicated to what may go wrong at the company.


Before you get scared off from investing in an IPO, however, you should realize that many of these risk factors and disclaimers are included in every prospectus.

Then again, just because they're boilerplate doesn't mean you shouldn't pay attention.

Following is a list of some warning signs that prospective IPO investors should pay close attention to.


In general, they're listed in order of where one would find them in the prospectus, from the front of the document to the end.

Again, this is only a partial list, and in the final analysis, what's most important is that an investor feels comfortable with a company,

its business, its market position, its growth strategy, and its management.

Second-tier investment banks --

Investment banks hired by a company to handle an IPO must do a fair amount of due diligence,

so it's always comforting when the names on the front of a prospectus are well-known and well-regarded.


Of course, even the best banks take out some turkeys.

Plus, a number of small regional banks have solid reputations.

Just be a little more careful if the name of the investment bank doesn't ring a bell.

Found on bottom of front page.