Retail Investors At Risk With Arm IPO

Retail traders who are eagerly anticipating Arm Holdings' highly anticipated public offering when the British chip designer begins trading this week should exercise caution: Individual investors often face losses when they invest in hot listings.

Since Arm, owned by Japan's SoftBank Group, is not well-known among consumers, it is primarily targeting institutional investors in its IPO marketing efforts. I Photo: 2bm

Arm's goal of raising around $5 billion in New York in what might be the biggest IPO of 2023 follows other major listings in recent years that have mostly disappointed in terms of returns, as reported by Noel Randewich and Hannah Lang for Reuters.

Since Arm, owned by Japan's SoftBank Group, is not well-known among consumers, it is primarily targeting institutional investors in its IPO marketing efforts, according to individuals familiar with the deal.

This strategy leaves Main Street investors potentially buying Arm shares at higher prices once they become available for trading. Based on a Reuters analysis, recent history suggests that retail investors, who tend to hold individual stocks for less than a year on average, could incur losses.

The ten largest U.S. initial public offerings (IPOs) of the past four years have seen an average decline of 47% from their closing price on their first day of trading, according to the analysis of LSEG data as of Friday.

Investors who bought at the peak of an intraday price surge, which often occurs in high-profile listings, would have suffered even greater losses, with an average loss of 53%.

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