Of course, we have to wait and see what it settles at, and it's a little premature to heap scorn just yet. But the initial reaction is it looks like they overreacted to the Facebook IPO debacle (in my book, Facebook did the best thing possible for the company and extracted as much value as possible from the public markets --- and the value buyers didn't get screwed, given that a year later it's trading at ~20% above the IPO price.).
Facebook was the fuckup because they priced correctly and all the buddies of the underwriters didn't make bank on the IPO. Twitter is back to the old system and nobody will be complaining this time around.
If you give a shit about bankers (most of us do not), then you win.
There have been a few exceptions to this, Apple being the most famous one. Facebook was on the same track but the SEC rules about share ownership forced their hand.
Notable pull quote: "It's important to note that if any other company spent until their EPS was negative, investors would /flip/. Amazon is playing with razor thin margins while trying to scale up a platform to end all platforms that we might someday use for everything without thinking about it."
So again, like Apple and Facebook, everyone knows the CEO is playing the long game and doesn't give a crap what the stock price is.
Haven't seen a situation or company like that since.
Choosing a good price is a) hard, because of the due diligence, and b) expensive, because if you chose wrongly, you lose money (in an auction, this is called the winner's curse.) So the cost of estimating the price before the shares are on the market needs to be priced in to the initial sale price.
Probably doesn't explain a 100% jump though, but in regard to the rich supposedly supporting free markets, I will remark that people's ability to be for things when they are applied to other people, and against them when applied to themselves, never ceases to amaze me.
“The company did everything to secure the most cash for itself while leaving some money for the IPO buyers,” said Josef Schuster, the founder of IPOX Schuster LLC, a Chicago-based manager of about $1.9 billion. “You need a pop at the opening to leave a good taste with everyone. They did a pretty good job managing the whole situation.”
Are you suggesting markets are not efficient? In that case, when can we expect you to become extremely wealthy from your inefficiency-proving strategy? (Claiming the EMH is false is equivalent to claiming that such a strategy exists.)
Incidentally, when an actor behaves irrationally in an efficient market, this happens:
Knowing that the market is inefficient is not equivalent to knowing which stocks to buy or sell, or when to do so. It doesn't give you a magic formula, but it does give you some idea of what to look for.
FWIW, I have done pretty well picking stocks for myself, but I'm far from what I would consider "extremely wealthy". That being said, if I had a magic formula for instant huge wealth you can be damn sure I wouldn't be sharing it.
Market efficiency is not a moral concern; it's more like a physics observation.
In fact trying to understand economics with morality or some other form of normative claim is a huge and quite pervasive mistake that destroys people's ability to understand it before they even start trying. It's a machine. What we do with it may be moral or immoral, but the market itself is all but a natural force.
At the very least, if not me, Warren Buffett has shown that the market does in fact exhibit large-scale persistent opportunities. You just have to be patient. I don't think "arbitrage" is actually the relevant term here. It has a very specific meaning that isn't simply a stock being mispriced. Really though, the market offers deals all the time.
FWIW, I don't have Buffett's track record, but I currently have 20 stocks in my portfolio most of which I've held for several years. Of those, 19 have made money and 1 has lost a small amount, and on the whole I've beaten the market nicely. I could just be written off as lucky, or as about to lose lots of money, but how do you explain Buffett? He has a track record of consistently beating the market by wide margins for 50 years. Seems like that wouldn't be possible under EMH.
As for your positive returns, the easiest explanation is that you're in a green square on this graph (suitably updated): http://www.nytimes.com/interactive/2011/01/02/business/20110... (Read what the graph is carefully, most people misinterpret it at first glance.)
...on average. Which is what makes "beating" the market, over enough time, impossible.
But we know there are pricing discrepancies and information asymmetries in finite periods of time because we see them every day.
The EMH is false for values of "efficient" that are interesting, and the values of "efficient" for which it might be true are boring and useless in the grander scheme of things.
A lot of needless bad blood enters discussions because everybody interprets the word "efficient" as they please.
But I'd be selling it, and you can find out how by buying my book for the low, limited time price of three payments of $99.99. If you act now, we'll also throw in this great place-mat shaped like a $3 bill, and a ring-tone for your phone that sounds like money. Just pay separate shipping and handling. <insert three thousand word disclaimer here>
What if I were able to prove that markets are inefficient because efficiently pricing securities is an NP-complete problem? Well, sure, maybe a strategy exists, but if it requires solving an intractable problem then I'm not about to get rich off of my proof ;)
That depends which recent Nobel Memorial Prize winner you believe.
My understanding is that much of the progress in economics has been merging economics with psychology to identify rational failures.
So in microeconomics or small models, people can practically accept and implement these (pretty obviously true) ideas that people don't behave rationally. But in large scale macroeconomic models it's hard to do. It would certainly be a lot easier if people just acted like computers...
It's like the law of large numbers; while a single transaction may have a completely wrong price, a sufficiently large number will average the irrationalities out.
The truth is not so - people get irrationally exuberant or are afraid to cut their losses, etc. These are problems of statistical bias of their estimations - and the opposite is assumed in many (most?) economic models.
More importantly, they're a huge waste of resources that produces nothing of economic value.
He doesn't actually claim the markets have perfect information, just that the price always reflects all available information. In essence, you can't "beat the market" consistently, assuming you have the same information.
Which you don't, since Goldman Sachs is always a few milliseconds ahead of everyone else. Given that almost everyone else out there is going to be trading on information that has already been consumed and acted upon by privileged parties, the markets may as well for all intents and purposes be irrational.
If you were able to do that, that means that VMWare and Visa both got screwed out of billions of dollars.
And of course, little guys can't get in right at the IPO price. That's reserved for big players. By systematically underpricing IPOs, the finance folks make billions of dollars for their friends at the expense of the companies they're supposed to represent.
Furthermore, when an IPO is priced such that this does not happen, such as with Facebook, it's criticized and called out as a disaster even though they sold all the stock they wanted to issue and made much more money for their company than they would have otherwise.
That's not a real thing.
Not true. If I'm selling 1 share and see $40, I can probably get $40 for that share. If I'm selling 1M shares it is a lot harder to get $40 for every single one. If I'm selling ~550M shares with zero existing market then getting that $40 is nearly impossible. Twitter worked out a guaranteed ~$26/share which is pretty good. A bird in the hand is better than two in the bush and all that.
Please correct me if I misunderstood something.
Fiduciary duty to who? The shareholders that cashed in today are the same ones who are behind the IPO. You're trying to make it seem like some poor distant shareholder got screwed over, which is not true.
Unless you mean that twitter "sold" shares at $26, but the actual value was closer to $46 - meaning their investors nearly double their money, and twitter raise nearly half of what they could have?
The fact that people are now willing to buy them for $46 a share suggests that they basically sold them at too low a price (arguably $20 a share too low).
In doing so they've lost out on a fair bit of money. Establishing a value ahead of the flotation is difficult and often companies will err on the side of caution (that is sell slightly cheap) to make the sell off look like a success, but I think it's being suggested that this gap is too big to just be that and that some of the previous owners may be unhappy that they've lost out.
They have failed to gain that (admittedly huge) chunk of dollars but they have lost nothing: the have the same money they started with and they never had any more than that. You only lose when you start with X and end up with X-Y, for positive Y.
They have probably missed the opportunity to gain more but that is their mistake (if it is a mistake).
They lost out, just as if I took your $20k new car and gave you $10k, you'd have lost out even though you have more cash.
What happens is that they did not guess (and this is an important term, there is no inherent value in a guess) TODAY'S market's expectations correctly. But that has little to do with true monetary loss or gain.
Of course, their expectations today might be crushed. But personal expectations and hopes are not valuable as shares are.
It's not clear cut but the share price hitting $46 suggests that they could have floated successful at a higher price.
My opinion is that if they had not gone public, nobody would have bought their shares for $46 each. But this is a worthless statement :)
Could it not be the case that while they could find buyers for some of the shares at $46, they could only guarantee selling all of the shares at $26?