I.P.O. — Investors p.o.ed

Posted on Nov 11, 2011 by in Letters

We rarely comment on I.P.O.s. This is because we understand the essential mechanics of these deals.  They exist to transfer money from the public to entrepreneurs and Wall Street underwriters. Viz, Groupon, above. These deals are always priced at what the market will bear -- meaning overpriced most of the time. Back in the 90s in the tulipomania I.P.O.s shot up like rockets on offereing day.  We later learned it was because of "laddering".  That is, the sponsors sold pre offering shares to their fund and hedge fund buddies with the understanding that the buddies would buy more shares in the after market -- rocket fuel boosters.

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