[Financial Essay] Big Win in IPO Subscription? ... What You Actually Get Is Two Months' Interest from Savings Banks

Will Everyone Get Rich by Riding the Public Offering Stock Craze?

[Asia Economy Reporter Minyoung Kim] Can investing in IPO stocks of companies listed on the stock market really lead to a “jackpot”? Is it okay to blindly buy shares of companies going public (IPO) just because of the recent hype around IPO stocks? Let’s explain the actual returns of IPO investments using Kakao Games as an example.

According to industry sources, during the general subscription held on the 1st and 2nd, investing 100 million KRW would have allowed you to receive 5 shares of Kakao Games stock. This was achieved by overcoming a fierce competition ratio of 1,525 to 1.

On the 10th, Kakao Games recorded a “ttasang” on its first day of listing. “Ttasang” refers to a newly listed stock forming an opening price at twice the IPO price on the first day of listing and then immediately soaring to the upper limit (+30%). Kakao Games’ IPO price was 24,000 KRW, the opening price was twice that at 48,000 KRW, and then it hit the upper limit to close at 62,400 KRW on the first day.

The stock also hit the upper limit on the second day, recording what is called “ttasangsang.” The closing price that day was 81,100 KRW.

If you had received 5 shares of the IPO stock and sold them all on the first day, you would have made a pre-tax profit of 192,000 KRW. If you were “lucky” enough to sell at the highest price of 81,100 KRW the next day, you would have earned 285,500 KRW.

However, if you did not do short-term trading and still hold the stock, the “unrealized profit” based on the closing price on the 18th (63,400 KRW) would have decreased to 197,000 KRW.

If you sold the stock on the first day of listing, the return would be 160%, and if sold on the second day, the return would rise to 237%. The actual profit for general investors ranges from 192,000 KRW to a maximum of 285,500 KRW.

Is this amount really a jackpot? Let’s compare it with bank interest. The interest rate for savings accounts with flexible deposits and withdrawals at savings banks is 1.5% to 1.7% per annum. Many savings banks nowadays pay interest on these flexible deposit products monthly. Calculating 1.5% interest on 100 million KRW gives 1.5 million KRW per year, or 125,000 KRW per month (pre-tax). The highest rate is 1.7%, which translates to about 141,666 KRW per month.

If you sold Kakao Games IPO shares at the highest price (81,100 KRW), you would have earned the equivalent of two months’ interest at 1.7% from a savings bank. Selling at the “ttasang” price of 62,400 KRW on the first day would have earned about 53,000 KRW more than the 1.7% interest.

Whether earning an extra 53,000 to about 140,000 KRW is considered a lot or a jackpot is subjective. However, considering the opportunity costs such as time spent reading securities firms’ reports for Kakao Games IPO subscription, thoroughly reading various posts on related communities, the effort of applying for subscription via mobile apps or visiting securities firms’ branches, and monitoring stock price trends during weekday daytime via Mobile Trading Systems (MTS) or internet portals, is it really a large amount?

Putting 100 million KRW in a savings bank’s flexible deposit account and doing nothing for a month yields up to 140,000 KRW. There are no performance conditions or automatic transfer requirements that financial consumers dislike. You just need to sign up through each savings bank’s mobile app, create a regular deposit account, and make a transfer. There is no deposit limit.

Of course, it is understood that stock investment returns and bank interest should not be directly compared. Also, the author has no intention to disparage or criticize individual investors’ stock investment activities. The author also invests in stocks and is watching the recent IPO stock boom in the stock market with interest.

But let’s think about it coldly. While many expect to hit the jackpot by subscribing to IPO stocks, the reality is not so easy.

The likelihood of hitting the jackpot is higher for major shareholders of the company issuing the IPO stocks, employees allocated treasury shares, or investors who can invest tens to hundreds of billions of KRW in IPO subscriptions.

Individual investors can gain experience in stock trading, understanding stock market principles, and short-term high returns (or losses) through IPO subscriptions, but they cannot become rich in a short period. Whether they can earn high returns by believing in the company’s future growth and investing for several years is uncertain.

Also, it is important to remember that not all IPO stocks promise high returns like Kakao Games.