With the reform and opening up and the rapid development of China's economy, China's securities market has also experienced a growth process from scratch, from small to large. However, the gradual expansion of the stock market and the significant improvement of the degree of marketization not only bring more investment opportunities for everyone, but also contain more investment risks, so the majority of investors must have a clear understanding of this. For the long sought after subscription of new shares, i.e., "innovation", investors should also be more rational and cautious when participating, establish a scientific and standardized investment concept, and must not blindly participate without thinking, so as to avoid the loss of wealth.

Once upon a time, "make new" has become a mythical iron law in China's stock market. For investors, winning a bid is no different from winning a lottery. It's a good thing to make money without compensation. So a large number of funds poured into the primary market to share this feast. However, in recent years, the myth of "fighting new and invincible" has been broken, and the phenomenon of new shares breaking has occurred repeatedly. In the two and a half years from the second half of 2009 to the end of 2011, 730 new shares were issued in China's A-share primary market, and 103 were broken on the day of listing, accounting for 14.11%.

There are many reasons that lead to the rise of the rate of breaking new shares, but on the whole, we believe that the breaking of new shares is closely related to the high price earnings ratio of the initial public offering. Historical data shows that from the beginning of 2002 to the end of 2008, the average annual IPO P / E ratio of China's A-share market fluctuates narrowly within the range of 17-30 times. However, since the IPO was restarted in 2009, the average annual IPO P / E ratio in the last three years has reached 53 times, 59 times and 46 times respectively. It is significantly higher than the P / E ratio of all A-shares in the same period calculated by the whole method, and the value return is inevitable 。 In addition, there is a certain relationship between the breaking rate of new shares and the market performance: the market rose sharply in 2009, and the breaking rate of new shares was zero; in 2010, the CSI 300 index fell by 12.50%, and the breaking rate of new shares was 7.45%; in 2011, the CSI 300 index fell by 25.01%, and the breaking rate of new shares rose to 27.30%.

Compared with all new listed companies, the price earnings ratio premium level and the proportion of over raised shares are higher. The data shows that the average price earnings ratio (diluted) of new stock issuance in the statistical period is 50.81% higher than the average price earnings ratio of the industry in the same period, and the average over raised ratio is 141.63% (excluding some new stocks that are not available from the data). Among the companies that broke on the first day of IPO, the average premium rate of the issue price earnings ratio (dilution) relative to the industry's price earnings ratio in the same period is 51.48%, and the average over raised ratio is 155.06%. In addition, the data shows that the listed companies with higher price earnings ratio premium level and larger proportion of over raised shares in the initial industry have higher first day break rate and greater market risk.

The breaking of new shares has caused considerable losses to the individual investors participating in the "innovation". Among the 103 companies breaking the new shares on that day, the average decline of the stock price on the first day of listing was 6.56%. For institutional investors with a three-month sales limit, the losses are even greater. In the statistical data, there are 700 new shares with a duration of more than three months, 187 of which have fallen below the issue price three months later, accounting for 26.71% of the total, with an average decline of 11.48%. If we look at a longer time span, the number of companies that fell below the issuance price after one year reached 166, accounting for more than 35%, and the decline expanded to 22.63%. The above data clearly shows that there is considerable risk in "innovation", which is by no means a foolproof move assumed by some investors.

The repeated breaking of new shares not only requires the strengthening of system construction, but also requires the relevant sponsor to formulate the IPO price more reasonably. What's more, investors must establish a correct "view of new shares" and realize that the break of new shares is just as normal as the rise and fall of old shares in the market, which cannot be bound by the view of "every new must rise". From the perspective of protecting their own interests, investors should understand the basic situation of Listed Companies in detail as much as possible before participating in "innovation", and make rational judgments on the investment value and future growth of their companies. If the offering price obviously exceeds the reasonable range, the company shall firmly refuse to participate in the subscription. We believe that when more and more investors tend to be rational, it will force our listed companies, sponsors and inquiry institutions to make more reasonable judgments on the issue price, and ultimately promote the healthy development of the new stock market on a reasonable and orderly track.