Financings vs. Buying in Open Market
There isn’t a clear-cut advantage in doing financings versus buying in the open market. A lot of it has to do with preference. However, if you’re given the opportunity to assess what stage a company is at in its development, sometimes gaining access to financings gives you benefits. These benefits can include discounts on stocks and financings, along with warrant coverage.
The retail investor doesn’t always understand when to buy and when to sell based on merely trading patterns. Oftentimes, you are better off buying a financing that has a hold period because this allows for the company to develop and get bigger. A holding period can also lead to picking management, which is the secret to choosing the right investment.
Retail investors need to have a solid blend of both buying financings and also having trades in open market positions. One of the best things to do is to buy a piece of a private placement and also buy in the open market. If the open market trade moves up you might be able to make profits while your other position is restricted.
Example of Financings & Buying in the Open Market
Say Company A has stocks trading at $1 apiece. You, the retail investor, have the opportunity to buy the financing at $0.80 with a warrant at $1.10. You put $5,000 into the financing and, shortly after, the stock price of Company A rises to $1.15 after the financing closes. Then, you might decide to put another $5,000 into Company A. A few weeks later, the stock goes from $1.15 up to $1.40. After the stock price has risen, you then decide to sell it and make a profit. You now have a profit from your original $5,000—which means the financing really only costs you $3,500 because you have already received a profit. When your stock becomes free-trading—and it may come down because of pressure or will continue to grow—then you have a win from the free-trading position and you have a win from your financing.
The Why Checklist
Having a diversified portfolio is imperative to making money. Here are a few things you should consider when thinking about purchasing financings and also buying in the open market:
✓ Owning a Blend
✓ Minimal Restrictions
✓ Ability to Make More Money
What to Look For to Make Money
It’s simple—have a blend of both financings and open market buys. Diversification is key to making more money. Similar to the example above, having buys in both areas will allow for multiple wins…and who doesn’t like to win when it comes to money?
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