I bought a stock last year when it went public. A major brokerage firm was the underwriter and had a $30 target price on the stock. I thought it would be a good idea to buy the stock at $18 as I thought it would go up to $30. The stock traded below $1 yesterday. How could the agent be so wrong?
Didn’t the analyst, a professional, do due diligence before going public with such a high price target? It seems that they have set a high price target to generate interest in the IPO. is this ethical Granted, other companies also slashed their price targets on the stock, but the underwriter had the highest target. I feel like a “chump” buying it so expensive.
Feeling like a fool
love feeling
The insurer wants to make money. Management wants to make money. Brokers want to make money. And investors want to make money. Everyone has their name in their hat for the same reason. Not everyone wins. And sometimes everyone loses. (I removed the name of the brokerage house and company from your letter and read the company’s own description of the services and I still have no idea what it does. I assume you have/had a better idea. )
It’s a gamble and no one can predict the future as any IPO prospectus will tell you. Because of this, before going public, companies warn investors that the stock can go down as well as up, the company could go out of business, and myriad other potential disasters. You’re buying at your own risk, and large brokerage houses — even those who underwrote the IPO — have often lowered their own price targets on the stock, as was the case in this case.
The analysts who underwrote the IPO and wrote the first investor report before the IPO work on the brokerage’s “buy” side. The analysts who evaluate a company’s financial results, competitors, managerial capabilities, and other business plans post-IPO are on the “sell” side. This is the brokerage side of an investment bank and these analysts are intended to form their own objective opinion regardless of an investment bank’s role as underwriter.
Every investor wants to get on the ground floor of the next Tesla TSLA,
-3.19%
or Apple AAPL,
-0.82%
or Netflix NFLX,
-2.43%
or Amazon AMZN,
-2.34%.
In his book “The Wall Street Waltz‘ wealth manager Ken Fisher has a fairly simple, if refreshingly blunt, explanation for your dilemma. “IPO stocks often go up instantly because the brokers selling them get sales commissions of several percent for their hype, so they create a lot of mindless momentum around these themes,” he writes.
““Looking at an investor who has made a fortune from a single stock is like listening to a person who wins an Oscar and says you can pursue your destiny and don’t give up on your dreams.””
“Investors get sucked in by the excitement and dreams of big hits,” Fisher added. “And they usually get hit because companies only raise money through stock offerings when the price is great for them — which, on average, is too high to be a good deal for buyers. Soon the hype will die down and stocks will go flat.” The era of the metaverse and social media hasn’t changed that. how should i know Fisher wrote those cautionary tales a year before the 2008 financial crash.
However, investors often complain about the opposite problem: IPOs are often undervalued, and this is one of the most studied anomalies in stock markets. This current review has looked at a large body of research on the subject and concluded that companies want to both raise their profile and raise money, and concluded that undervaluation is largely due to “information asymmetry”. In plain language, this means that one or more parties have more information than others.
“Some investors are better informed than others. In other words, they have a better knowledge of the quality of firms, which firms are overpriced or overpriced,” author Kelai Wang wrote. His other conclusions might also apply to your case of an overpriced IPO: “Due to capital constraints, the stock market is not believed to be fully populated by informed investors. IPOs need to be undervalued to keep the less informed investors in the market.”
Investing in individual stocks is a no-brainer unless you bought Apple for $22 a share 40 years ago. But even those who have done so and tell you that buying a single stock can bring success probably (a) bought the stock a long time ago, (b) held it for a long time, and (c) got lucky. Watching an investor who made a fortune off a single stock is like listening to someone win an Oscar and say you can manifest your destiny and not give up on your dreams.
They believe it because they did it, and they want you to believe that you can too. Of course, some find a lucrative side business to further their theory of getting rich and famous by recreating your own fortune and selling it to the masses. They write books on get-rich-quick, give TED talks on get-rich-quick, and appear on their own get-rich-quick TV shows. But remember: Warren Buffett makes mistakes too.
With real estate, compound interest, and retirement planning, it’s easier to get rich slowly. If you decide to hold onto this stock, get in touch with me in 40 years.
yeahand You can email The Moneyist for financial and ethical questions at qfottrell@marketwatch.com and follow Quentin Fottrell Twitter.
Cash the monetary private Facebook Group in which we are looking for answers to life’s most difficult money questions. Ask your questions, tell me what you want to know more about, or subscribe to the latest Moneyist columns.
The Moneyist regrets that it cannot answer questions individually.
More from Quentin Fottrell:
“She’s a crook”: My dad set up a $500,000 foundation for my troubled sister and asked me to be a trustee. What are the risks of working as a trustee?
“We live in purgatory”: My wife has a trust fund, but my mother-in-law controls it. We make $400,000 and spend beyond our means. What’s our next step?
I’m afraid to tell my spouse: I’ve maxed out my credit cards and owed $100,000 because of my gambling addiction. Can you help?
“I feel like a fool”: I bought shares for $18 after an IPO. The underwriter’s brokerage house had a target price of $30. It fell below $1. How could they get it so wrong?
I bought a stock last year when it went public. A major brokerage firm was the underwriter and had a $30 target price on the stock. I thought it would be a good idea to buy the stock at $18 as I thought it would go up to $30. The stock traded below $1 yesterday. How could the agent be so wrong?
Didn’t the analyst, a professional, do due diligence before going public with such a high price target? It seems that they have set a high price target to generate interest in the IPO. is this ethical Granted, other companies also slashed their price targets on the stock, but the underwriter had the highest target. I feel like a “chump” buying it so expensive.
Feeling like a fool
love feeling
The insurer wants to make money. Management wants to make money. Brokers want to make money. And investors want to make money. Everyone has their name in their hat for the same reason. Not everyone wins. And sometimes everyone loses. (I removed the name of the brokerage house and company from your letter and read the company’s own description of the services and I still have no idea what it does. I assume you have/had a better idea. )
It’s a gamble and no one can predict the future as any IPO prospectus will tell you. Because of this, before going public, companies warn investors that the stock can go down as well as up, the company could go out of business, and myriad other potential disasters. You’re buying at your own risk, and large brokerage houses — even those who underwrote the IPO — have often lowered their own price targets on the stock, as was the case in this case.
The analysts who underwrote the IPO and wrote the first investor report before the IPO work on the brokerage’s “buy” side. The analysts who evaluate a company’s financial results, competitors, managerial capabilities, and other business plans post-IPO are on the “sell” side. This is the brokerage side of an investment bank and these analysts are intended to form their own objective opinion regardless of an investment bank’s role as underwriter.
Every investor wants to get on the ground floor of the next Tesla TSLA,
-3.19%
-0.82%
-2.43%
-2.34% .
or Apple AAPL,
or Netflix NFLX,
or Amazon AMZN,
In his book “The Wall Street Waltz‘ wealth manager Ken Fisher has a fairly simple, if refreshingly blunt, explanation for your dilemma. “IPO stocks often go up instantly because the brokers selling them get sales commissions of several percent for their hype, so they create a lot of mindless momentum around these themes,” he writes.
““Looking at an investor who has made a fortune from a single stock is like listening to a person who wins an Oscar and says you can pursue your destiny and don’t give up on your dreams.””
“Investors get sucked in by the excitement and dreams of big hits,” Fisher added. “And they usually get hit because companies only raise money through stock offerings when the price is great for them — which, on average, is too high to be a good deal for buyers. Soon the hype will die down and stocks will go flat.” The era of the metaverse and social media hasn’t changed that. how should i know Fisher wrote those cautionary tales a year before the 2008 financial crash.
However, investors often complain about the opposite problem: IPOs are often undervalued, and this is one of the most studied anomalies in stock markets. This current review has looked at a large body of research on the subject and concluded that companies want to both raise their profile and raise money, and concluded that undervaluation is largely due to “information asymmetry”. In plain language, this means that one or more parties have more information than others.
“Some investors are better informed than others. In other words, they have a better knowledge of the quality of firms, which firms are overpriced or overpriced,” author Kelai Wang wrote. His other conclusions might also apply to your case of an overpriced IPO: “Due to capital constraints, the stock market is not believed to be fully populated by informed investors. IPOs need to be undervalued to keep the less informed investors in the market.”
Investing in individual stocks is a no-brainer unless you bought Apple for $22 a share 40 years ago. But even those who have done so and tell you that buying a single stock can bring success probably (a) bought the stock a long time ago, (b) held it for a long time, and (c) got lucky. Watching an investor who made a fortune off a single stock is like listening to someone win an Oscar and say you can manifest your destiny and not give up on your dreams.
They believe it because they did it, and they want you to believe that you can too. Of course, some find a lucrative side business to further their theory of getting rich and famous by recreating your own fortune and selling it to the masses. They write books on get-rich-quick, give TED talks on get-rich-quick, and appear on their own get-rich-quick TV shows. But remember: Warren Buffett makes mistakes too.
With real estate, compound interest, and retirement planning, it’s easier to get rich slowly. If you decide to hold onto this stock, get in touch with me in 40 years.
yeahand You can email The Moneyist for financial and ethical questions at qfottrell@marketwatch.com and follow Quentin Fottrell Twitter.
Cash the monetary private Facebook Group in which we are looking for answers to life’s most difficult money questions. Ask your questions, tell me what you want to know more about, or subscribe to the latest Moneyist columns.
The Moneyist regrets that it cannot answer questions individually.
More from Quentin Fottrell:
“She’s a crook”: My dad set up a $500,000 foundation for my troubled sister and asked me to be a trustee. What are the risks of working as a trustee?
“We live in purgatory”: My wife has a trust fund, but my mother-in-law controls it. We make $400,000 and spend beyond our means. What’s our next step?
I’m afraid to tell my spouse: I’ve maxed out my credit cards and owed $100,000 because of my gambling addiction. Can you help?
Source : www.marketwatch.com