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Tim and Lynn Lee wrote:
> Of interest to all traders should be the article in Jan issue of
> Vanity Fair on IPOs.
> The writer compares it to the tulip bulb mania of the 1630s. I know
> we have all heard it before but, companies that have bad business
> plans and have never made money are coming out as ipos and are being
> priced by the market
> as though they are worth billions.
>
> People joining these companies are given stock deals that can make
> them worth hundreds of millions on paper.
>
> Examples, theglobe.com and Netzero
>
> But as traders, we cannot short these stocks until they show weakness.
> My friend thinks the best strategy is to wait until they fall 50% in
> value then short them. When will that be?
>
> IPOs
>
> Ipo traders should take note. The trader featured in the article has
> traded in and out of 260 ipos this year netting about 5 million
> dollars. And he is buying the stocks after they start trading, not
> getting them at the offering price.
>
> Amazing facts about the ipo market.
>
> This year twice as many ipos doubled in value the first day as in the
> previous 25 years combined.
> The average ipo is up 57% on its first day.
>
> So, it doesn't matter what the fundamentals are momentum is what is
> being traded these days.
>
> Tim Lee
What I want to know is, when a stock increases 200% or more on the
intial day, and the underwriting firm keeps a block of stock for
themselves, why isn 't there an investigation on the underwriter
undervaluing the stock? Seems like a legal (?) way to steal if you ask
me. Why are these internet stocks being priced at IPO so low and then
rocketing up in price? It is the job of the investment
banker/underwriters to fairly value that stock. Even given the high risk
of these type of stocks,
I can't see where an underwriter would need more than a 50% discount to
cover their tush. Where the stocks have gone up 200% or more the first
day, the companies should sue their investment banker for doing a bad job
of valuation and therefore depriving that company of millions if not
billions of dollars. Those companies that do not sue, should be sued by
the shareholders for negligence. Am I off base on this or is the world so
intoxicated on internet fever that they can't see what is right in front
of them?
Dumbfoundedly,
Norman
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