I am no stock analyst but yesterday one of my readers emailed and asked about my views on the Ascendas Hospitality Trust impending IPO. First of all, investors need to know that Ascendas Hospitality Trust is a business trust and not a typical real estate investment trust (Reit). In this case, about 80 percent of the assets will be in the business trust and 20 percent in the Reit. To be honest, I am not sure how business trust works and normally if I don’t understand a business model, I would not invest in the company. This is not to say that Ascendas Hospitality Trust is not a good stock. On the contrary, it can be a potentially good stock that delivers consistent yield for long term investors. However, I would not invest in such business trust because I will only invest in stocks with business models that I can understand. To me, investing should be kept simple and as a rule of thumb, you must be able to describe the business in one sentence.
Secondly, I usually do not invest in IPO. Most speculators or novice investors like to dabble in IPO. They might have made some money but I observed that many times, after the euphoria died down, investor’s interest in these IPO would also disappear, causing the prices to drop. I also try to steer clear of IPO because sometimes the institutional investors will unload their shares investment after the lock-in period is over so as to realise their investment gains. When this happened, the prices normally will drop. So if you invest in IPO, make sure you monitor the stock closely. In today’s market, conventional “buy and hold” strategy no longer works. Investors need to set a target price to sell. You don’t want to catch a falling knife.