Uber is one of 2019’s hottest IPOs, and the ride-hailing company has many investors wanting to ride the stock to riches. While many investors are angling to buy the stock as part of the IPO, most won’t get even a tiny piece of the company before it goes public. But you can always buy Uber on the stock market, after the stock officially debuts.
Here’s how to buy Uber stock and what to consider beforehand.
1. Analyze the company and its financials
Before buying any stock, you’ll want to understand the company and its finances. The best place to start is with the company’s prospectus filed with the Securities and Exchange Commission, also known as an S-1.
The S-1 can be tremendously helpful in explaining many facets of the company:
- how the company makes money
- what assets and liabilities it has
- its record of profitability and loss
- its competitors and the industry landscape
- the risks faced by the business
- the management team and their resumes
The prospectus gives you this information about a business and much more, but that alone won’t be enough to get a full picture of the investment potential. You’ll also want to read more about the industry and how other players are competing against the company.
For example, in the case of Uber, rival Lyft also went public, and it showed massive losses for years. While Uber and Lyft have different business models, they do have some key similarities, and that’s one reason investors need to carefully understand what the Lyft IPO means for Uber.
If you can’t get comfortable with the company’s ability to achieve profitability, then you can simply stop work right here and find another company where you are comfortable.
2. Does the stock make sense in your portfolio?
Once you understand the business, you’ll want to see if it makes sense in your portfolio and with your investing philosophy. In the case of Uber, it’s a high-flying growth stock with a history of losing billions of dollars a year, and these types of stocks tend to fluctuate a lot — especially when the market gets choppy. In addition, the stock won’t pay a dividend for the “foreseeable future,” according to Uber’s S-1 filing.
- Does this kind of growth stock fit your temperament?
- Will you be able to continue analyzing the business as it develops?
- Will you be able to hold the stock if it loses a lot of value? Could you buy more?
- Does the lack of a dividend fit with your needs?
Finally, if you’re buying just a few shares as a trading position, these considerations might not matter much. But if you’re investing even 1 percent of your portfolio in a stock, you’ll likely want to feel confident that it fits your needs, and are willing to hold the stock for a bit to give the company time to show what it can do.
3. How much can you afford to invest?
It’s important to evaluate how much you can invest in the stock, because IPOs – especially IPOs with uncertainty about their ability to sustain profits – can be really risky. With any investment, you’ll want to be able to withstand the complete loss of the principal and still live comfortably. So that’s your standard for investing in individual stocks.
As a general rule of thumb, experts recommend having 20 to 30 stocks in a portfolio, if you’re buying individual stocks. That means an individual stock should have about 3 to 5 percent of your assets in it, if the positions are equally weighted.
However, if you’re less certain of the stock or it’s riskier, then you should lower the percentage so that if it declines your portfolio won’t be hurt as much. For a riskier stock, a position of 1 or 2 percent can be an adequate start.
Another useful strategy is to buy into a position over time, using dollar-cost averaging. This practice means buying the stock at regular intervals using a fixed amount of money for each purchase. That can be especially useful on a stock with a lot of initial interest such as Uber, where the price may rise quickly at first, but then may later fall as interest wanes.
For example, rival Lyft went to nearly $89 per share when it debuted, but can now be purchased for $53 or so. By buying over time, you’ll also get to see how the underlying business performs and then can buy more if you like what you see. So dollar-cost averaging reduces your risk and can help increase your gains because you’re buying more shares when prices are lower and fewer when prices are higher.
4. Open a brokerage account
Here’s the easy part: opening a brokerage account. A brokerage account allows you to buy stocks on the exchange, and you can open one quickly and easily, often in 15 minutes or less.
You’ll want to select a broker that meets your needs. Brokers often compete on price, with many vying for the lowest possible commission, but that’s not the whole story for a broker. Many brokers provide extensive research and education, so you can make smart investment decisions. And if you’re looking to do more than just buy individual stocks, many brokers offer no-transaction-fee mutual funds and commission-free ETFs, too.
A good broker will make your online trading experience much easier. And when you’ve opened your account, you’ll need to fund it with the amount that you want to spend on Uber shares.
5. Buy Uber stock
So, if you’ve decided to buy Uber stock and got your account lined up with money, now you can input your order. You’ll need Uber’s ticker symbol, but that’s easy for this company: UBER.
Then you can set up a trade. Stick to the broker’s easy trade entry form. Many brokers have a “trade ticket” right at the bottom of the screen, where you can enter all the vital trade information.
From there, you’ll input the ticker symbol and how many shares you’d like to buy, based on how much money you’ve allocated to the trade. You’ll also be asked for the order type: market or limit. A market order will execute at whatever the prevailing price is, while a limit order will execute only at the price you specify or better.
If you’re buying fewer than a hundred shares, stick with a market order. A few cents difference in price probably means little overall. For example, if you’re buying 20 shares, and you want to put in a limit order at a price that’s five cents lower, you’ll spend an extra dollar to get the trade done now. In the big scheme of things, that’s not going to affect whether your investment is a winner.
While it can be exciting to invest in a new IPO and join the crowd in the expectation of future profits, many IPOs don’t work out well for investors, despite the initial hype. Investors should take a long-term perspective and consider that there may be a better time to buy even well-regarded companies.
For example, investors in Facebook would have done great if they had waited a few weeks for the price to fall after the initial furor of the IPO. That’s one of the many great tips for investing in an emerging industry such as social media.