Question

In 2010 you bought 12 initial public offerings (IPOs) of common equity of which there were 22 in total. You held each of these for approximately one month and then sold them. The 22 IPOs were all for oil- and gas-exploration companies. You submitted a purchase order for approximately $1000 of equity for each one. With 10 of these, no shares were allocated to you. With five of the 12 offerings that were purchased, fewer than the requested number of shares were allocated.

The year 2010 was very good for oil- and gas-exploration companies. For the 22 IPOs the shares were selling on average for 80 percent above the offering price within a month. Yet, you looked at your performance record and found the $8,400 invested in 12 companies had grown to only $10,100, a return of only about 20 percent. (Commissions were negligible). Did you have bad luck or should you have expected to do worse than the average IPO investor? Explain.

Answer 1

We shared several shares than demanded with 5 organizations. The medium growth of the purchase in the oil and gas search firms has happened about 80%, but we have a growth of barely 20%. It is not our poor chance just as the word says “the normal growth” which expects that some organizations have achieved almost 150%, some made in negative and some about our results of 20%. So, our purchase needs become dropped in the organizations that have completed only 20%. Had we were given in all 12 organizations and then our results would have been well over the present 20%. On the opposite hand, we could accomplish more critical in negative, had we got the bad working organizations’ shares.
So, there is zero like bad luck, but how ideas must fall at our end will determine results. In fact, we got a share in just 5 firms who got an increase of 20% only during the month.

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