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Tech IBers late 90s

why were they so bad at valuing these ridiculous businesses. not only did they value it so high, even though they had no profit or revenues in some cases, but the average stock would gain 30-100% on IPO day. why didn’t they estimate their inflated price then add 50% for poops and giggles and capture the extra dough? i’m a youngie and have only studied this period so would like some insight. ps. i know how difficult it must’ve been to value them period.

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Except most prospectuses allow the underwriting syndicate to buy more stock at the IPO price after the deal is done. That’s where the real $’s made.

There was no laws, so why not value it as high as you can, so you get more commissions after stupid people buy it?

adehbone Wrote:
——————————————————-
> There was no laws, so why not value it as high as
> you can, so you get more commissions after stupid
> people buy it?

Ding ding ding ding…

You’ve won a prize…

A new portable snow cone machine!!! yaaaaaaaay

Matt, it’s not so much they were bad at valuation (which they still were) - it was the incentive to ride the gravy train - see my previous post on Facebook IPO

ValueAddict, CFA

What’s the huge, long, drawn out process of creating pitchbooks?
Just go into a meeting, ask what the last offering price was, than double it.
Boom, moola in the coola

go ask Frank Quattrone why

adehbone Wrote:
——————————————————-
> There was no laws, so why not value it as high as
> you can, so you get more commissions after stupid
> people buy it?

Because part of a banker’s pitch will be their extensive client network to whom they can sell the stock, both IPO and afterwards. Those clients will only be burned so many times by overpriced IPOs. Furthermore, pricing an IPO and having it go down makes you look like you don’t know what you’re doing, and you generally may have to spend a fair amount of money defending the stock, and once the shoe is gone you’re praying it doesn’t fall any further. On the other hand, generally speaking everyone is happy if it rises, so this is what they should aim to do.

okay, a follow-up..

were they jacking up the prices higher and higher as time went on yet the prices kept being bid up? were they already being greedy in setting an unfounded IPO price yet because there was so much euphoria, it didn’t matter where the price started? did the IPO price not matter, but just act as a benchmark from which to start bidding like a doorknob? i can’t comprehend this type of euphoria.. i suppose you had to be there to believe it?

another question: did the opening price on IPO day usually start at the ridiculous premium, or would it get bid up during the day?

JTLD… isn’t the over-allotment clause just to fill client orders? so isn’t the over-allotment still just a factor of the initial ipo price? that is how ibers are paid right? a commission % from the total $ amount sold?

MattLikesAnalysis Wrote:
——————————————————-
> okay, a follow-up..
>
> were they jacking up the prices higher and higher
> as time went on yet the prices kept being bid up?
> were they already being greedy in setting an
> unfounded IPO price yet because there was so much
> euphoria, it didn’t matter where the price
> started? did the IPO price not matter, but just
> act as a benchmark from which to start bidding
> like a doorknob? i can’t comprehend this type of
> euphoria.. i suppose you had to be there to
> believe it?

Like Storko said, whatever the last IPO price was, double it can create the hype. Banker wanted to price it as high as possible (fees), trader wanted to be priced little lower, so the stock price trades up (100% or 200% on the opening day). Who wins? Usually the banker. Plus the stupid lock-up period for insiders, underwriting team (in the name of supporting and stabilizing the IPO) is a scam, supply and demand is artificially out of balance…no wonder price trades up with the least amount of hot air.

the more things change, the more they stay the same. This time around it went by the name “MBS”, “CDO”, etc.

A wise man once said: “…..and the streets don’t change, but maybe the name”

Underwriters are salesmen whose job is to get the highest price they can for their issuer client’s securities; some posts in this thread seem to reflect a failure to understand that.

jbaldyga Wrote:
——————————————————-

> A wise man once said: “…..and the streets don’t
> change, but maybe the name”

Axl Rose, 1988

Soddy1979, CFA

^far ahead of his time. Only now do we realize that ‘Patience’ was about the financial markets. genius……

^ GnR rules :)