people should pay $38 for an IPO because they’ve calculated the fundamentals and know the stock is worth that, not because they think they’re going to be able to sell it for $48 when it starts trading
pigs get slaughtered
———————————————– Trust God and keep your powder dry ———————————————– Southern by the grace of God
I don’t see a problem with this. If IPO goes down…doesn’t that mean MS got the best price? In the primary market, you’re a counterparty to the offering firm, they can’t be looking out in your best interests…
Cities teem with evil and decay, let’s give it a good shake and see what falls out!!
people should pay $38 for an IPO because they’ve calculated the fundamentals and know the stock is worth that, not because they think they’re going to be able to sell it for $48 when it starts trading
pigs get slaughtered
One thing I know with certainty after passing the CFA exams, watching the market daily for six years and researching hundreds of stocks is that any asset is only worth what other people will pay for it. That’s it. You can calculate any fundamental value you want, but the price someone is actually willing to pay to buy it off you is the only thing that matters when you try to sell it. Morgan Stanley did exactly their job – they maximized the price for their big client (you can argue the people they placed the stock with were their clients as well, but those clients are small and can be replaced, so they don’t hold the big stick in this transaction). Unless it can be proven that the filing documents were fraudulent based on inaccurate information in the disclosures, everyone needs to get their panties untwisted and move on. Unless fraud is shown, MS did absolutely nothing wrong. Is it unethical? Sure. But what have ethics ever had to do with the stock market? This is capitalism people, let’s be honest with ourselves.
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
Okay, THIS, if true, would be egregious. I’ve been saying for a long time that the global settlement is kaput, and this would seem to prove that (if true).
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
people should pay $38 for an IPO because they’ve calculated the fundamentals and know the stock is worth that, not because they think they’re going to be able to sell it for $48 when it starts trading
pigs get slaughtered
One thing I know with certainty after passing the CFA exams, watching the market daily for six years and researching hundreds of stocks is that any asset is only worth what other people will pay for it. That’s it. You can calculate any fundamental value you want, but the price someone is actually willing to pay to buy it off you is the only thing that matters when you try to sell it. Morgan Stanley did exactly their job – they maximized the price for their big client (you can argue the people they placed the stock with were their clients as well, but those clients are small and can be replaced, so they don’t hold the big stick in this transaction). Unless it can be proven that the filing documents were fraudulent based on inaccurate information in the disclosures, everyone needs to get their panties untwisted and move on. Unless fraud is shown, MS did absolutely nothing wrong. Is it unethical? Sure. But what have ethics ever had to do with the stock market? This is capitalism people, let’s be honest with ourselves.
I totally agree. And I would extend that to many assets out in the real world.
It’s the only logical reason why people will spend $150M on a painting, or $2000 an ounce on gold
Hope. It is the quintessential human delusion, simultaneously the source of your greatest strength, and greatest weakness.
nothing wrong with this at all…there are some guys even on here who was looking to get into FB…..if you couldn’t decipher the problem than too bad…nobody made you want it…..
nothing wrong with this at all…there are some guys even on here who was looking to get into FB…..if you couldn’t decipher the problem than too bad…nobody made you want it…..
Yeah, the facebook IPO was like KimK. It was kind of hot in that trashy way (HTB – you heard it here first), and you knew it was overpriced and that you were probably going to get raked over the coals, but some poor schmoe(s) still weren’t able to help themselves when given the opportunity to inject capital (or something else). Don’t be like Kris Humphries, you’re better than that.
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
The issue (as described in bromion’s link) is that MS allegedly shared material non-public information with some investors but not others. Price subjectivity is not really the cause of this controversy.
I think there are multiple controveries. The controversy really started on Monday when the stock was down (which was its own controversy because people felt bilked). The material non-public info has just come to light (to my knowledge at least) – that is a real issue, but everything else is just crying over spilled milk.
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
The morning of the IPO there was a discussion on one of the NPR stations about how it would take only the bravest investors to short FB. My initial reaction was that I certainly see myself doing that if I was a stock investor. FB is crap. The IPO was very well publicized, and that makes me think, “what kind of company would need all that kind of publicity for any product or service?” Empty barrels really make the most noise, remember Tax Masters?
I’ve never had anything to do with trading so I don’t know the regulatory issues if there are any with the FB IPO.
Regardless, MS’s job is to make as much money as they can for themselves and their client. And they did.
Their job isn’t to price the IPO 40% low so it opens 40% higher.
Maybe I’m just cynical but how could anyone who wasn’t an insider expect to make any money on this stock trading at 80x earnings (not a question).
Ahmen. MS’s job is not to underprice the IPO so everyone can jump in on the gravy train. I haven’t looked at the fundamentals, but initially, I have a hard time getting excited about this stock.
The issue here is the alleged insider trading, not the price of the stock.
Yes, and that’s what I was referring to in my post above, based on my reading of Bromion’s link.
If the story is true, then a few analysts were in possession of “material non-public information”. Any Level 1 candidate, much less a charterholder, should have read that phrase a few dozen or hundred times. Heck, I took Level 3 four years ago and that phrase is still printed on my brain. Someone correct me if I’m wrong, but wasn’t the CFA’s recommendation for the analyst in possession of such material non-public information to encourage the company to make it public? I think that’s how it went.
Anyway, yet another example of the CFA theory not meeting reality.
Going back to the pricing issue…MS actually has conflicting responsibilities. They need to raise as much money for their client (FB) as possible and therefore try to get the highest IPO price possible. But, they also have a duty to their investors. If MS prices an IPO too high, initial investors lose money and they won’t trust MS to price an IPO fairly in the future.
A successful IPO should go up 5-15% in the secondary market. If it goes up more, then the company going public got screwed. If it goes down or remains flat the initial investors get screwed.
Make no mistake about it, this was a huge failure for MS.
Let me put it this way. I don’t buy IPOs, there’s a supply / demand dynamic there that I simply don’t have the market savvy to accurately guage. But my Dad, who’s not some major heavy weight investor called me about a week before the IPO saying his broker asked him if he’d like shares if their podunk brokerage got some. I asked my Dad how many IPO’s he’s had access to before, and pointed out that if it was worth a crap and the demand was there he wouldn’t be getting a call. So he declined.
I don’t think MS did anything wrong. I think investors are stupid. I do think they hurt some of their placement ability by alienating some investors, but because people were reaching so far down the retail chain to place this junk, I don’t think they alienated many of their key heavyweights who probably declined. So the damage may not be as bad as it seems.
who told you an IPO should go up 5-15% that is just stupid…so basically there is free money to be made by that logic…ppl who think that way are problably long IPOs…
who told you an IPO should go up 5-15% that is just stupid…so basically there is free money to be made by that logic…ppl who think that way are problably long IPOs…
I said for an IPO to be deemed successful it should go up 5-15% on the first day. That’s not my opinion, that’s historical IPO performance. Investors that participate in IPOs expect to be rewarded. There’s additional risk of being first in line to a buffet, so expected returns go up. Why would anyone participate in an IPO that wasn’t expected to go up? Put another way, it would be much harder to take companies public if IPOs generally fell in value on the first day of trading. Everyone would wait to buy in the secondary market and never buy the IPO.
But, it’s not like MS could have priced FB at $15 just to ensure a 100% one day gain. Then they would have screwed FB out of billions. The trick for any investment bank is to price it so the initial investors get rewarded for their participation, and that their client is getting the most out of going public. It’s a balancing act.
As we’re seeing with FB, it’s not always free money. But, there is a reason brokers only allocate portions of the IPO to their best clients. Not free money, but generally a good bet.
who told you an IPO should go up 5-15% that is just stupid…so basically there is free money to be made by that logic…ppl who think that way are problably long IPOs…
I said for an IPO to be deemed successful it should go up 5-15% on the first day. That’s not my opinion, that’s historical IPO performance. Investors that participate in IPOs expect to be rewarded. There’s additional risk of being first in line to a buffet, so expected returns go up. Why would anyone participate in an IPO that wasn’t expected to go up? Put another way, it would be much harder to take companies public if IPOs generally fell in value on the first day of trading. Everyone would wait to buy in the secondary market and never buy the IPO.
But, it’s not like MS could have priced FB at $15 just to ensure a 100% one day gain. Then they would have screwed FB out of billions. The trick for any investment bank is to price it so the initial investors get rewarded for their participation, and that their client is getting the most out of going public. It’s a balancing act.
As we’re seeing with FB, it’s not always free money. But, there is a reason brokers only allocate portions of the IPO to their best clients. Not free money, but generally a good bet.
This is a good post. One thing I wanted to add:
People are calling the facebook IPO a blunder. I doubt it was a blunder at all. Usually, the investment bank would try to create value for both sets of clients, as Sweep indicated. But it’s possible that the investment bank might decide to completely hose its retail / private clients in favor of the investment banking client IF the investment banking client’s IPO was so large and lucrative (and so high profile) that the incentive structure became skewed. The facebook IPO wasn’t as lucrative as it could have been based on the fee structure, but there is a follow on effect (or should have been) from other tech companies wanting to use MS to go public, so it should have been VERY lucractive for MS on a NPV basis. It’s very possible that the senior tech bankers / management of MS sat around and said, “Yeah, let’s stuff this crap down our investors’ throats any way we can to maximize this for facebook” because they figured that would maximize MS’s own value. In fact, I think that is probably likely. If they lose some smaller customers on the other side of the trade, no biggie, those people turn over anyway and can be replaced. You can’t replace a facebook though, and it’s hard to replace any future lucrative tech IPOs you get as a result of having been the lead underwriter on facebook (which may now be in question given the media coverage but probably seemed like a great point at the time). Not a blunder.
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
If you bought yesterday morning, FB is great stock so far.
Yeah, it doesn’t suck yet. Give it time.
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
MS wouldn’t have been buying shares like crazy in an effort to support the IPO price if they didn’t view it as a blunder to have the price drop below $38.
NASDAQ screwed up badly too. FB is already looking to delist and move to the NYSE. It was just a botched job from the start.
Looking forward, if a company is being valued at 80x forward earnings, you’ve got to expect some huge growth. Exponential growth. Not just in users…that really doesn’t matter. I’m not sure they can monetize the ones they have. I think we’ll see FB trading around 45x forward earnings in a couple quarters. That’ll still be too high.
major ethics violation >.>
Studying With
Come on, it’s a rigged casino.
Why can’t we just put that disclaimer on this and stop pretending that the markets abide by rules and regulations.
The retail investor needs to be told straight up, “You have no business here, unless you are ok with losing.”
Formerly ChickenTikka - Member of the Order of the Righteous Rusty Hacksaw
people should pay $38 for an IPO because they’ve calculated the fundamentals and know the stock is worth that, not because they think they’re going to be able to sell it for $48 when it starts trading
pigs get slaughtered
———————————————– Trust God and keep your powder dry ———————————————– Southern by the grace of God
I don’t see a problem with this. If IPO goes down…doesn’t that mean MS got the best price? In the primary market, you’re a counterparty to the offering firm, they can’t be looking out in your best interests…
Cities teem with evil and decay, let’s give it a good shake and see what falls out!!
One thing I know with certainty after passing the CFA exams, watching the market daily for six years and researching hundreds of stocks is that any asset is only worth what other people will pay for it. That’s it. You can calculate any fundamental value you want, but the price someone is actually willing to pay to buy it off you is the only thing that matters when you try to sell it. Morgan Stanley did exactly their job – they maximized the price for their big client (you can argue the people they placed the stock with were their clients as well, but those clients are small and can be replaced, so they don’t hold the big stick in this transaction). Unless it can be proven that the filing documents were fraudulent based on inaccurate information in the disclosures, everyone needs to get their panties untwisted and move on. Unless fraud is shown, MS did absolutely nothing wrong. Is it unethical? Sure. But what have ethics ever had to do with the stock market? This is capitalism people, let’s be honest with ourselves.
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
http://www.businessinsider.com/exclusive-heres-the-inside-story-of-what-happened-on-the-facebook-ipo-2012-5
Okay, THIS, if true, would be egregious. I’ve been saying for a long time that the global settlement is kaput, and this would seem to prove that (if true).
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
I totally agree. And I would extend that to many assets out in the real world.
It’s the only logical reason why people will spend $150M on a painting, or $2000 an ounce on gold
Hope. It is the quintessential human delusion, simultaneously the source of your greatest strength, and greatest weakness.
Yeah, there was something in the CFA Code of Ethics about this kind of thing. And yes, that’s an understatement.
nothing wrong with this at all…there are some guys even on here who was looking to get into FB…..if you couldn’t decipher the problem than too bad…nobody made you want it…..
Yeah, the facebook IPO was like KimK. It was kind of hot in that trashy way (HTB – you heard it here first), and you knew it was overpriced and that you were probably going to get raked over the coals, but some poor schmoe(s) still weren’t able to help themselves when given the opportunity to inject capital (or something else). Don’t be like Kris Humphries, you’re better than that.
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
The issue (as described in bromion’s link) is that MS allegedly shared material non-public information with some investors but not others. Price subjectivity is not really the cause of this controversy.
“I’m a CPA! I got money b***h!”
I think there are multiple controveries. The controversy really started on Monday when the stock was down (which was its own controversy because people felt bilked). The material non-public info has just come to light (to my knowledge at least) – that is a real issue, but everything else is just crying over spilled milk.
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
bottom line is, somebody (anybody who bought the IPO) lost money and now are crying over it……
The morning of the IPO there was a discussion on one of the NPR stations about how it would take only the bravest investors to short FB. My initial reaction was that I certainly see myself doing that if I was a stock investor. FB is crap. The IPO was very well publicized, and that makes me think, “what kind of company would need all that kind of publicity for any product or service?” Empty barrels really make the most noise, remember Tax Masters?
I’ve never had anything to do with trading so I don’t know the regulatory issues if there are any with the FB IPO.
Regardless, MS’s job is to make as much money as they can for themselves and their client. And they did.
Their job isn’t to price the IPO 40% low so it opens 40% higher.
Maybe I’m just cynical but how could anyone who wasn’t an insider expect to make any money on this stock trading at 80x earnings (not a question).
~~~~~Live. Laugh. Love.~~~~~
blake is right…..
Ahmen. MS’s job is not to underprice the IPO so everyone can jump in on the gravy train. I haven’t looked at the fundamentals, but initially, I have a hard time getting excited about this stock.
The issue here is the alleged insider trading, not the price of the stock.
Yes, and that’s what I was referring to in my post above, based on my reading of Bromion’s link.
If the story is true, then a few analysts were in possession of “material non-public information”. Any Level 1 candidate, much less a charterholder, should have read that phrase a few dozen or hundred times. Heck, I took Level 3 four years ago and that phrase is still printed on my brain. Someone correct me if I’m wrong, but wasn’t the CFA’s recommendation for the analyst in possession of such material non-public information to encourage the company to make it public? I think that’s how it went.
Anyway, yet another example of the CFA theory not meeting reality.
*” Unless fraud is shown, MS did absolutely nothing wrong. “
* ” Maybe I’m just cynical but how could anyone who wasn’t an insider expect to make any money on this stock trading at 80x earnings”
Totally agree. It is pure greed and speculative investment….
Just like ny scheme offering more than 20% return is bound to flop (turn to be fraud one day) the fundamentals did not simply agree with the hype…
Rightly said: ‘pigs get slaughtered’ , CFa theory or no theory!!
Going back to the pricing issue…MS actually has conflicting responsibilities. They need to raise as much money for their client (FB) as possible and therefore try to get the highest IPO price possible. But, they also have a duty to their investors. If MS prices an IPO too high, initial investors lose money and they won’t trust MS to price an IPO fairly in the future.
A successful IPO should go up 5-15% in the secondary market. If it goes up more, then the company going public got screwed. If it goes down or remains flat the initial investors get screwed.
Make no mistake about it, this was a huge failure for MS.
Let me put it this way. I don’t buy IPOs, there’s a supply / demand dynamic there that I simply don’t have the market savvy to accurately guage. But my Dad, who’s not some major heavy weight investor called me about a week before the IPO saying his broker asked him if he’d like shares if their podunk brokerage got some. I asked my Dad how many IPO’s he’s had access to before, and pointed out that if it was worth a crap and the demand was there he wouldn’t be getting a call. So he declined.
I don’t think MS did anything wrong. I think investors are stupid. I do think they hurt some of their placement ability by alienating some investors, but because people were reaching so far down the retail chain to place this junk, I don’t think they alienated many of their key heavyweights who probably declined. So the damage may not be as bad as it seems.
I used to smoke pot and go to class.
Sneak in ten minutes late with a bullsh*t excuse.
Slink down low at my desk.
Pray to god nobody asked me any questions.
I was the best teacher ever.
who told you an IPO should go up 5-15% that is just stupid…so basically there is free money to be made by that logic…ppl who think that way are problably long IPOs…
I said for an IPO to be deemed successful it should go up 5-15% on the first day. That’s not my opinion, that’s historical IPO performance. Investors that participate in IPOs expect to be rewarded. There’s additional risk of being first in line to a buffet, so expected returns go up. Why would anyone participate in an IPO that wasn’t expected to go up? Put another way, it would be much harder to take companies public if IPOs generally fell in value on the first day of trading. Everyone would wait to buy in the secondary market and never buy the IPO.
But, it’s not like MS could have priced FB at $15 just to ensure a 100% one day gain. Then they would have screwed FB out of billions. The trick for any investment bank is to price it so the initial investors get rewarded for their participation, and that their client is getting the most out of going public. It’s a balancing act.
As we’re seeing with FB, it’s not always free money. But, there is a reason brokers only allocate portions of the IPO to their best clients. Not free money, but generally a good bet.
This is a good post. One thing I wanted to add:
People are calling the facebook IPO a blunder. I doubt it was a blunder at all. Usually, the investment bank would try to create value for both sets of clients, as Sweep indicated. But it’s possible that the investment bank might decide to completely hose its retail / private clients in favor of the investment banking client IF the investment banking client’s IPO was so large and lucrative (and so high profile) that the incentive structure became skewed. The facebook IPO wasn’t as lucrative as it could have been based on the fee structure, but there is a follow on effect (or should have been) from other tech companies wanting to use MS to go public, so it should have been VERY lucractive for MS on a NPV basis. It’s very possible that the senior tech bankers / management of MS sat around and said, “Yeah, let’s stuff this crap down our investors’ throats any way we can to maximize this for facebook” because they figured that would maximize MS’s own value. In fact, I think that is probably likely. If they lose some smaller customers on the other side of the trade, no biggie, those people turn over anyway and can be replaced. You can’t replace a facebook though, and it’s hard to replace any future lucrative tech IPOs you get as a result of having been the lead underwriter on facebook (which may now be in question given the media coverage but probably seemed like a great point at the time). Not a blunder.
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
my mistake….
If you bought yesterday morning, FB is great stock so far.
You can fondle the cube, but it will not respond.
Yeah, it doesn’t suck yet. Give it time.
“I lost my wife to a margin call. Wives get mad when you come home and say, ‘Sweetheart, I lost the house today.’” - Dennis Gartman on trading mistakes
MS wouldn’t have been buying shares like crazy in an effort to support the IPO price if they didn’t view it as a blunder to have the price drop below $38.
You can fondle the cube, but it will not respond.
NASDAQ screwed up badly too. FB is already looking to delist and move to the NYSE. It was just a botched job from the start.
Looking forward, if a company is being valued at 80x forward earnings, you’ve got to expect some huge growth. Exponential growth. Not just in users…that really doesn’t matter. I’m not sure they can monetize the ones they have. I think we’ll see FB trading around 45x forward earnings in a couple quarters. That’ll still be too high.
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