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Hard to determine which part your most concerned about. When $25b of wealth is being created, there are going to be some folks making money. And you might not t
by pbreit 13y ago
Hard to determine which part your most concerned about. When $25b of wealth is being created, there are going to be some folks making money. And you might not think some of those folks earned their take.
First, you're too fixated on "loss-making". IPO companies are almost by definition loss-making. IPOs are fundraising events. Growth companies use money to invest in the business for growth, not profits (yet).
Second, it's rare for early investors to cash out on the IPO (Facebook was an exception). Instead, they usually wait for a secondary or for the lockup expiration.
Third, yes, there is frequently an artificial "pop" on the day of the IPO because of the pent-up demand but that usually tempers quickly. Investors should definitely be careful and know what they are getting into. If they bought into Yelp, LinkedIn or even Facebook at the popped price and hung on as long term (read: every) investors should, they are doing fine.
Fourth, yeah, the investment banks get to dole out typically underpriced shares to their top clients. Get over it.
Fifth, the banks do take on some risks. Facebook IPO presented the banks with considerable risk of loss depending on when the banks were able to unwind their positions.
Sixth, the pre-IPO market has evolved such that a lot of people who want in are getting in prior to the IPO.
Feeling cynical might be fun but isn't very attractive or lucrative.
- bolder88 13y ago> When $25b of wealth is being created Woah there. I think this is the fundamental issue. $25b of wealth hasn't been created. It's not free money. It's a scam.
- lowboy 13y agoI think you have different requirements on what constitutes "wealth".
- bolder88 13y agoIf you print some more money is that wealth?
- lowboy 13y agoYes, because it could be exchanged for other goods and services. You could buy gold or land (if you printed enough money). Is that not "wealth" to you?
- bolder88 13y agoYou're not creating anything though. If you print money, you're just devaluing all the current money, and stealing from people who already have money. I'm not convinced twitter has created anything really valuable. Or anything that will be around in 5/10 years time.
- SideburnsOfDoom 13y agoJust printing money in the absence of a reason is generally regarded as a bad idea. More money in the system casing the same quantity of things to buy just causes prices to go up to compensate. In short, inflation. this is very basic economics. So the short short answer to "If you print some more money is that wealth?" is "No". https://www.google.co.uk/search?q=printing+money+inflation https://www.google.co.uk/search?q=printing+money+inflation http://economics.about.com/cs/money/a/print_money.htm http://economics.about.com/cs/money/a/print_money.htm
- SideburnsOfDoom 13y agoCould you explain why you think that IPOs are scams that don't actually create wealth? Or is it just this one? Though I'd rather say that an IPO serves to acknowledge the worth already created by the company before the IPO?
- lowboy 13y agoI think bolder88 has a problem with the idea that an IPO creates intrinsic wealth, or somehow increases the overall "wealth" of the entire system (either global or within a given country). Yup, and now the word "wealth" is just a random series of letters when I read it.
- SideburnsOfDoom 13y agoAs far as I can work out, the IPO does not "create intrinsic wealth", the value is generated by having a successful startup, and this value is then recognised by the market at the IPO - If there was no success in the company already, there would be no wealth at the IPO. But this could be a semantic difference between "creates" and "recognised".
- wrice314 13y agoHow has $25B of wealth not been created? The market believes that the price of the stock is a price such that the total company would be valued at $25B. What asset can you own other than the dollar that is not based on market pricing? Is $25B worth of gold today worth $25B of wealth? What if the world woke up tomorrow and thought gold was worthless.