Posts filed under “IPOs”
No, no, no, no, and one last no.
Look, I get it, I really do: You are all excited — dare I say “atwitter”? — at the prospects of today’s big initial public offering. It is oversubscribed by 30X (or so we hear), priced at the high end of its range, and opened way above $40, and is trading at $45.
But please, when describing the process of going public, do not hand-select the best tech IPOs of the past 20 years to use as proof of how awesome all tech IPOs themselves are.
I like Twitter, as you can see @Ritholtz. I use it much more than I ever did Facebook (I was very negative about its IPO). I am more constructive about Twitter’s IPO relative to its initial price, assuming you can even get any. However, I cannot condone the use of horrific infographics like the one above. It has so many biases reflected in it that it has to be is our “Bad Math/Cognitive Bias” teachable moment of the day.
1) Hindsight Bias: These are the IPOs that did well — but did anyone know beforehand that LinkedIn and Amazon were going to be giant winners? No.
2) Confirmation Bias: Since we are talking about a hot IPO, then let’s show only all really successful IPOs of the past few years. What does this mean relative to TWTR? As it turns out, absolutely nothing.
3) Winner’s Curse: The most optimistic bidders are the ones who drive typical IPO prices. This may be the reason that studies have shown IPOs underperform the broader market in general. According to Professor Jay Ritter of the University of Florida, from 1970 to 2010, the average IPO did worse than the market over their first few years by a little as 140 basis points and as much as 810 basis points.
4) Survivorship Bias: These are the winners, where are the losers? Where are Pets.com, Webvans, eToys? Ignoring those firms that die is a fundamental failure for any stock analyst.
5) Time Error: Amazon has been trading for 16 years; Facebook for a little over 1 year. To put the above returns into any sort of usable context, they should be converted into annualized returns — not cumulative gains.
I am thrilled for Twitter’s successful IPO, and I hope the company survives a long time. That graphic, however, tells us less than nothing — it is actively misleading. Investors need to be wary of such foolishness.
Originally published here
Click to enlarge: Source: Bloomberg Fascinating comparison between Google and Microsoft gains since their IPOs from Dave Wilson. Earlier this month, Google managed to slip past Mister Softee in terms of market cap (MSFT is now $244.8B vs GOOG $243.56B). Microsoft Corp.’s stock-market performance during its first eight years as a public company far surpassed Google. MSFT…Read More
6 Buys, 3 Neutrals Average Price Target = $39 BofA/Merrill – Neutral – $38 PT Goldman Sachs – Buy – $42 PT Oppenheimer – Outperform – $41 PT JPMorgan – Overweight – $45 PT Piper Jaffray – Overweight – $41 PT Wells Fargo – Outperform – $37-$40 Range Credit Suisse – Neutral – $34 PT…Read More
The highly-anticipated Facebook IPO was plagued with problems, potentially costing thousands of dollars to many small investors and further damaging Wall Street’s reputation on Main Street. A Wall Street Journal report.
(I have a small cameo in this)
However big a clusterfuck you may have previously believed the Facebook IPO was, this WSJ article – Nasdaq CEO Lost Touch Amid Facebook Chaos — makes you realize it was actually worse, much worse. The Journal politely but devastatingly skewers Nasdaq for the bungled IPO trading. The words that come to mind is inexcusable and incompetent….Read More
John Hempton at Bronte Capital often makes for an interesting read. Today, however, I have to disagree with his take on the ethical obligations of investment bankers in the Facebook IPO. (Facebook and the sad case of ethical investment bankers). John writes: “In an IPO an investment bank takes a fee from a business to…Read More
The ongoing decline in Facebook stock is little more than a reassessment of the private market’s valuation — now recognized as somewhere between wildly optimistic and clinically insane. Bloomberg calls Facebook the “the worst-performing large initial public offering during the past decade” losing more than 20% in the 10 days since the IPO….Read More
Click to enlarge:
As Facebook’s IPO opened, real-time data feed (and HFT critic) Nanex Research noticed a strange anomaly: A Crossed market. This occurs whenever the Bid price is higher than the Offer (the spread is inverted).
What might be the source of this? Take a wild guess:
This also brings another example of the dangers of placing a blind, mindless emphasis on speed above everything else. Algos reacting to prices created by other algos reacting to prices created by still other algos. Somewhere along the way, it has to start with a price based on economic reality. But the algos at the bottom of the intelligence chain can’t waste precious milliseconds for that. They are built to simply react faster than the other guys algos. Why? Because the other guy figured out how to go faster! We don’t need this in our markets. We need more intelligence. The economic and psychological costs stemming from Facebook not getting the traditional opening day pop are impossible to measure. That it may have been caused by algos reacting to a stuck quote from one exchange is not, sadly, surprising anymore.
Ironically, the NASDAQ’s clients are no longer the investing public, but rather are HFTs. Whiole most people look at this as a black idea, I suspect the Nazz’ accountants think its much ad o about nothing . . .
More charts after the jump