Thursday, November 20, 2014

My First IPO purchse

I've been using Loyal3 for about three months now and one of their biggest features is something I shied away from.  Loyal3 is not only a simple, no fee, dollar based trading firm for big brands, they also want to bring IPOs to a broader group of people, namely you and me.  I'm not one to jump on IPOs because of the potential for quick money, that's not my trading style, but I decided to try an IPO this past week to learn from the experience.

One of the reasons I went for it this time was it was for a REIT (Real Estate Investment Trust).  I own a few of these and have posted before about how I like them in a diverse, never sell, portfolio.  While I shy away from mortgage trading REITs, the ones that buy property and lease them to tenants is a very good, reasonably stable, slow grow area that appeals to my long view.  This week STORE Capital (STOR) had an IPO.  Here's how the process worked.

Last week I received an e-mail from Loyal3 (I opted into this) and was told there would be an IPO for this company and I had a window I could log in, take a look at the prospectus, and reserve a spot for a minimum of $100 potential investment. (More on the "potential" part of that later.) there was a link to the SEC filing, and an estimated cost between $17 and $19 per share.  I looked over the documents, found the company, saw that they would probably be paying about $1/year in dividends, which worked out to about 5%. They own just shy of 500 properties, have 200 customers, and a very experienced management team.  As there was no fee to the investment, I figured I'd go for it, if it tanked, I'd pull out having learned a lesson and at least I wasn't making Loyal3 rich by doing it.

I put in a $200 reserve spot.  I was then prompted to transfer the $200 to my account, which I did and was painless.  You're then told that you will be contacted when the price is set.  But there are a few caveats.  If the price is below the estimate, or more than 20% above, you will need to confirm your reservation again.  If the company changes any filings, you will need to confirm your reservation again.  Otherwise you need do nothing.  When the price is set you will have a two hour window to bail out.

The price was set at 5pm on Monday at $18.50 and an email told me I had two hours to withdraw, otherwise my reservation would be set.

Here was where things got a bit odd. not good, or bad I guess, but odd.  If more people sign up more money than there are shares available, then Loyal3 does some math voodoo in the background to make sure everyone gets something, equal reservations get equal or similar shares, and some sort of first come, first serve thing. 

Tuesday morning I received an email stating that I would be getting $112.44 of STOR stock, at the price of $18.50.  This came to 6.0778 shares.  My cash account was reduced and the stocks were purchased, at that price at 3 pm on Tuesday.  I took the remaining cash from the $200 and drop it into UniLever (UL) which I had been eying.

So, things I learned:
  1. Loyal3 IPO was rather easy
  2. You may not (and history shows will not) get your full reserve.  If you strongly believe in a company, you may wish to put in a higher reserve, risking that you will get more than you thought, but at least you won't get less.
  3. You don't seem to be able to sell your shares the day of the IPO.  Probably not a problem unless you're looking to have a VERY fast turn around, but then Loyal3 isn't the best platform for short term trading.
  4. I will probably do an IPO again if the company looks to interesting.  If I know it will pay a dividend  I'll be more likely, but at $100 (and probably less if there is a lot of interest), it's a low risk venture.
I hope this helps you as you move forward with some minor investing.  If you have any questions, ask below and I'll do my best to answer, at least form my experiences.

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