Millions invest in the stock market each and every day. It’s a viable investment vehicle for those wanting to see a good return longterm on their cash input.
The stock market consists of companies that are “public”. These are companies that have had an initial public offering. You can buy and sell these stocks through a broker, like your bank or a dedicated trading platform.
You can also invest in stocks passively, through funds. These are where you buy into a fund sold by a bank or an investment firm. The firm carries out the investment in stocks, while you remain slightly hedged as your money goes into multiple avenues. These are sometimes in specific industries.
However, as well as public stock, you can also invest in private stock. It’s something that isn’t spoken about as much but can form a good part of any diversified portfolio and is used by both retail investors and big hedge funds.
What Is Private Stock
In a nutshell, private stock is the stock of a business that’s private, not public. A business that hasn’t yet had an IPO (initial public offering) and gone public.
Private stock isn’t influenced by the usual to and for of the public stock markets. For example, inflation, sentiment, and other public market factors don’t really impact private stock. It’s value is set by comparable company analytics (CCA).
It’s also set by how the business is doing. You can see here how private stock can be useful in times of significant market upheaval and change. If you hold private stock, it won’t follow the S&P if it takes a plunge, for example. The downside here is that you don’t benefit from wild upswings either. It’s why you usually invest in a private stock that you truly believe in.
Is Buying Private Stock Before An IPO A Good Idea
Private businesses do end up going public. Much like how public businesses might decide to go private too. When a business has an initial public offering, if there is excitement around the stock the price might be inflated and soar even higher as buying commences, leaving people with previously private stock in a good position. So, buying ahead of an IPO, instead of waiting for the IPO in question, can actually be a really good idea.
Private Stock Example: Offerup Stock
So, here’s an example of private stock which could eventually go public. Offerup sits in the consumer or lifestyle industry category, they were founded in 2011. They’ve developed an online resale marketplace and hope to make buying and selling as easy as taking a picture.
You can sell electronics, furniture and cars. The fact offerup are expected to go public makes offerup stock an appealing proposition because it’s currently private. The company has gone from strength to strength with funding at around $380m.
Offerup are yet to file to go public, however. So now is a good time to aim for some private stock. If you’re an investor looking to take advantage of pre ipo businesses that are expected to go public at some point, offerup is a key example. There are a multitude of private stocks like this out there. We’ve just picked offerup stock as an example.
How Do You Even Buy Private Stock
It’s not as easy as buying public stock, but it’s still probably easier than you think. Private stock is often associated with startups. Private stock is given to investors and backers of certain projects, and stock is also given to employees. There are a few ways to get private stock, here are some examples:
- Invest in the company directly
- Become an angel director (accredited director)
- Approach the company and ask to buy stocks
- Use a private stock broker/dealer
Those are the primary ways you can acquire private stock, as well as approaching someone with private stock and asking to purchase it, but that can be finicky with you needing all of the right paperwork etc. The easiest way is by using a private stock broker.
Is Private Stock A Worthwhile Investment
It’s 100% worthwhile, especially if you’re hands on and like to pick your own investments out. You need to be able to assess a company and check how well it’s doing before you pull the trigger and invest. Essentially, you’re investing in one stock, not a broad spectrum of them as you would with a fund.
People who invest in private stocks usually believe in the direction of the business. They’re a great way to diversify a portfolio and allow you to hedge some investment in stocks, but at the same time keep them away from any market turmoil.
Ella Marcotte
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