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None of what you just said has any basis in reality. If you really did know all of that, you would have spent every penny you have a) buying the stock at IPO an

None of what you just said has any basis in reality. If you really did know all of that, you would have spent every penny you have a) buying the stock at IPO and b) selling it tomorrow and then immediately shorting it and waiting.

bwilliams18 11y ago
This isn't a binary, just because those things are true, and because they tend to happen doesn't mean they are certainties or worth betting your whole net worth on. Anything could happen. There are outside market events to consider.
- chillydawg 11y ago
  Right, fine. So perhaps I should re-state my criticism as: If you know this is the case, then why not bet 2% of your net worth on every tech IPO that you magically know will pop and make huge gains vs the wider market. The answer is that you cannot do this because it is NOT TYPICAL. Plenty of tech IPOs flop but cognitive bias means you only remember the googles and apples and squares and not the 50% that go south of ipo price straight after launch.
  - arawde 11y ago
    Anyone with a solid understanding of investment fundamentals can distinguish an IPO which will flop versus one which will stay at or above market price on the first day. The SEC filings from every company before their IPO contains more than enough data to evaluate their standings as a business, and are publicly viewable. There's a reason people know things, it's not all magic.
brianwawok 11y ago
Knowing how a given market situation works does not mean you should spend every penny you have betting on it. False signals do happen, and not many things are 100%, especially in finance.
justizin 11y ago
knowing what people will probably do and betting your life that it will happen this time exactly as planned are different things.
justinv 11y ago
It's incredibly difficult to short an IPO within the first 30 days because the SEC requires the underwriter to wait at least 30 days to lend out shares for shorting. So then you'd have to get a retail or institutional investor who JUST PURCHASED shares to lend them to you to short. In which case, why would they bother buying them in the first place.
- scurvy 11y ago
  This isn't entirely true. If you hold securities in a margin account, your broker can lend the shares out to another client of theirs to short. You have no say in the matter. It's up to your broker to balance the number of longs vs shorts internally. But you can most definitely short on day one. I've done it and my account balance only has 1 comma in it. If the short to long ratio gets too close, they will close out shorts or try to borrow from other clearing firms so that they don't end up naked. Early on, most firms will just close the short.
  - prostoalex 11y ago
    > This isn't entirely true. If you hold securities in a margin account, your broker can lend the shares out to another client of theirs to short. You have no say in the matter. I don't think what you said is 100% true either. Charles Schwab brokerage definitely asks before lending out, advertises the interest the borrower is willing to pay on the loaned shares, enrolls the willing lender into Schwab Securities Lending Fully Paid Program, and then buys an insurance policy from Lloyd to cover counter-party default. All of this is done via FedEx letters and hand-written signatures. Sounds like some brokerages don't ask and keep the fees and accrued interest to themselves, which is shady. ETFs and mutual funds don't have to ask anybody, of course, and usually pass on revenue from securities lending to their customers via lower fees.
    - scurvy 11y ago
      Are you sure that's not only for cash accounts. Pretty much every margin account agreement I've ever seen says that they can lend out your holdings without your explicit consent or that acceptance of the agreement is explicit consent. Cash accounts are different creatures.
SeoxyS 11y ago
You can't short stock right after an IPO, and cannot trade options for a while either.
- dshanahan 11y ago
  You can short if you can find shares, which is harder than normal on IPO day. But it is possible.
exelius 11y ago
No, because it always works like that -- except when it doesn't. Financial markets are funny like that. The only hard and fast rule about fresh IPOs is that they are volatile. Also, unless a stock has crazy liquidity, instruments like shorts and options are generally not available to individuals for a while after an IPO. A hedge fund may be willing to issue them, but they're set up for low volume/high value trading so they only deal with other large institutional funds. Your average bank that would back options or shorts for an individual isn't willing to take on that kind of risk for a recently-IPOed stock.
- chollida1 11y ago
  Umm, I'm guessing you aren't in the industry as most of what you wrote here doesn't really make sense. > Also, unless a stock has crazy liquidity, instruments like shorts and options are generally not available to individuals for a while after an IPO. A hedge fund may be willing to issue them, but they're set up for low volume/high value trading so they only deal with other large institutional funds. How can a hedge fund issue options until options are legally able to trade? Short answer, they can't. > Your average bank that would back options or shorts for an individual isn't willing to take on that kind of risk for a recently-IPOed stock. Banks dont' "back" options, what ever that is supposed to mean. They are created when someone writes one, This is almost predominately, market makers and buy side funds, though the sell side will write some options. And the bank takes on almost zero risk when they lend securities to short sellers. The sellers post collateral at the end of each day that is usually around 100% of the current short. What risk do you think banks are taking on when lending? > I would expect to see Square drop precipitously over the next week/month as the professional investors can make money by pushing the valuation down, then it'll stabilize somewhere near the IPO price in 6-12 months. Based on what? probably not history as I just went through all the IPO's over the past 3 years, guess how many are trading within 5% of their IPO price? About 5% of them > Company fundamentals have very little to do with share price in the first year or two of an IPO; it's almost entirely psychological. Again, based on what? I don't think you get to state this without some basic research. Why after 2 years do people start looking at fundamentals?
  - 11y ago
rahimnathwani 11y ago
"buying the stock at IPO" How could parent have done this? Can non-super-rich individuals typically participate in IPOs? If not, then the only option is to buy at the market price at open, i.e. after any said 'pop'. (I'm not commenting on whether access to IPOs is a sure-fire way to make money.)

bwilliams18 11y ago

This isn't a binary, just because those things are true, and because they tend to happen doesn't mean they are certainties or worth betting your whole net worth on. Anything could happen. There are outside market events to consider.

chillydawg 11y ago
Right, fine. So perhaps I should re-state my criticism as: If you know this is the case, then why not bet 2% of your net worth on every tech IPO that you magically know will pop and make huge gains vs the wider market. The answer is that you cannot do this because it is NOT TYPICAL. Plenty of tech IPOs flop but cognitive bias means you only remember the googles and apples and squares and not the 50% that go south of ipo price straight after launch.
- arawde 11y ago
  Anyone with a solid understanding of investment fundamentals can distinguish an IPO which will flop versus one which will stay at or above market price on the first day. The SEC filings from every company before their IPO contains more than enough data to evaluate their standings as a business, and are publicly viewable. There's a reason people know things, it's not all magic.

brianwawok 11y ago

Knowing how a given market situation works does not mean you should spend every penny you have betting on it. False signals do happen, and not many things are 100%, especially in finance.

justizin 11y ago

knowing what people will probably do and betting your life that it will happen this time exactly as planned are different things.

justinv 11y ago

It's incredibly difficult to short an IPO within the first 30 days because the SEC requires the underwriter to wait at least 30 days to lend out shares for shorting. So then you'd have to get a retail or institutional investor who JUST PURCHASED shares to lend them to you to short. In which case, why would they bother buying them in the first place.

scurvy 11y ago
This isn't entirely true. If you hold securities in a margin account, your broker can lend the shares out to another client of theirs to short. You have no say in the matter. It's up to your broker to balance the number of longs vs shorts internally. But you can most definitely short on day one. I've done it and my account balance only has 1 comma in it. If the short to long ratio gets too close, they will close out shorts or try to borrow from other clearing firms so that they don't end up naked. Early on, most firms will just close the short.
- prostoalex 11y ago
  > This isn't entirely true. If you hold securities in a margin account, your broker can lend the shares out to another client of theirs to short. You have no say in the matter. I don't think what you said is 100% true either. Charles Schwab brokerage definitely asks before lending out, advertises the interest the borrower is willing to pay on the loaned shares, enrolls the willing lender into Schwab Securities Lending Fully Paid Program, and then buys an insurance policy from Lloyd to cover counter-party default. All of this is done via FedEx letters and hand-written signatures. Sounds like some brokerages don't ask and keep the fees and accrued interest to themselves, which is shady. ETFs and mutual funds don't have to ask anybody, of course, and usually pass on revenue from securities lending to their customers via lower fees.
  - scurvy 11y ago
    Are you sure that's not only for cash accounts. Pretty much every margin account agreement I've ever seen says that they can lend out your holdings without your explicit consent or that acceptance of the agreement is explicit consent. Cash accounts are different creatures.

SeoxyS 11y ago

You can't short stock right after an IPO, and cannot trade options for a while either.

dshanahan 11y ago
You can short if you can find shares, which is harder than normal on IPO day. But it is possible.

exelius 11y ago

No, because it always works like that -- except when it doesn't. Financial markets are funny like that. The only hard and fast rule about fresh IPOs is that they are volatile. Also, unless a stock has crazy liquidity, instruments like shorts and options are generally not available to individuals for a while after an IPO. A hedge fund may be willing to issue them, but they're set up for low volume/high value trading so they only deal with other large institutional funds. Your average bank that would back options or shorts for an individual isn't willing to take on that kind of risk for a recently-IPOed stock.

chollida1 11y ago
Umm, I'm guessing you aren't in the industry as most of what you wrote here doesn't really make sense. > Also, unless a stock has crazy liquidity, instruments like shorts and options are generally not available to individuals for a while after an IPO. A hedge fund may be willing to issue them, but they're set up for low volume/high value trading so they only deal with other large institutional funds. How can a hedge fund issue options until options are legally able to trade? Short answer, they can't. > Your average bank that would back options or shorts for an individual isn't willing to take on that kind of risk for a recently-IPOed stock. Banks dont' "back" options, what ever that is supposed to mean. They are created when someone writes one, This is almost predominately, market makers and buy side funds, though the sell side will write some options. And the bank takes on almost zero risk when they lend securities to short sellers. The sellers post collateral at the end of each day that is usually around 100% of the current short. What risk do you think banks are taking on when lending? > I would expect to see Square drop precipitously over the next week/month as the professional investors can make money by pushing the valuation down, then it'll stabilize somewhere near the IPO price in 6-12 months. Based on what? probably not history as I just went through all the IPO's over the past 3 years, guess how many are trading within 5% of their IPO price? About 5% of them > Company fundamentals have very little to do with share price in the first year or two of an IPO; it's almost entirely psychological. Again, based on what? I don't think you get to state this without some basic research. Why after 2 years do people start looking at fundamentals?
- 11y ago

rahimnathwani 11y ago

"buying the stock at IPO" How could parent have done this? Can non-super-rich individuals typically participate in IPOs? If not, then the only option is to buy at the market price at open, i.e. after any said 'pop'. (I'm not commenting on whether access to IPOs is a sure-fire way to make money.)