Private placement is an investment window open to high net worth investors. Here, companies seeking for funds offer their shares to high net worth investors (usually by written letter). These companies need money for expansion but are not listed on the stock exchange, so they invite selected investors to invest in their shares.This is sold at a reduced share price. As profitable as private placements are, some steps must be taken to avoid huge loses. Factors to consider when buying into a private placement include:
1. COMPANY MANAGEMENT
The management of a company is very vital to its success because they are in-charge of the day-to-day running of the business. It is therefore very necessary that those managing the company have cognizant experience of the business. Do not invest in company with a management whose experiences and qualifications are irrelevant to the success of the business. Always find out the credentials of those in the management.
2. COMPANY FINANCIAL REPORT
Always check at least four years financial report of the company whose private placement you want to invest in. find out the profit growth trend as well as the turn over growth trend. The company growth trends need to be consistent in all parameters. Never invest in a company that does not have consistent profit and turnover growth. Past financial report is very vital because that is the available evidence of performance with which you can assess the company. Also demand to know the company growth plan for the next four years and determine if it meets your investment ambition. Do not invest in a company with history of loses or without positive future prospect.
3. MARKET SECTOR
The market sector where the company operates must have strong potentials for growth. There should be expected future increase in the demand of the company goods and services. Increase in demand for the company goods and services bring about increase in turnover and profit. You must also ascertain it is not in a sector where competition will stifle its operation. Hence, where the future looks bleak or uncertain, do not invest. There are other opportunities that can yield you sure profits.
4. CONSISTENCY
Do not invest in a company without history in its line of business. You need to how long the company has been in operation. The company must have proved its worth in its line of business; this will help you ascertain its strength and ability to carry on. Investing in young companies has higher risk. Companies without history but with great promises have failed to deliver in the past. Research has shown that companies that have existed for more than ten years cannot suddenly collapse.
5. LISTING OF SHARES
Always ascertain the company readiness to become a quoted company (i.e. to list their shares of the floor of the stock exchange). Do not buy into a company that is not ready to list its shares. When a company fortune begins to dwindle, listed shares are the only possibility of you to recoup your money. Many investors money are tied down in companies whose shares are not listed.
6. RISK FACTORS
The company risk factors must be carefully considered before investing in it. The risk factors are likely to affect the company profitability, hence its importance. The risk factors for the market sector where the company operates are usually stated in the offer memorandum. Go through it carefully, if they are too great for you to bear, do not invest.
7. MEMORANDUM
Do not be a foolish investor. Stock investment is not a gamble; it is a knowledge-based investment. Before buying into any private placement, you must get the offer memorandum and study it carefully. Seek professional advice where necessary. You can become very wealthy through private placements, if you take the right steps.
GO SUCCEED
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Edoka Tony is a stock analyst with over 10 years of experience in the stock market. He dedicates his experience and knowledge to offering financial advice and helping people make mega millions in the stock market. He has written a lot of articles on stocks and investment which are a must read for every profit-minded investor. Get free copies of these articles at his site: http://stock707.blogspot.com/
