[quote=flu]Please dont nina… I mean, really there are better ways to gamble on the stock market than this….
Because in short… Most companies end up being more like Groupon/Zygna versus Google. Google was really the exception…
I’ve already covered this extensively…
Here’s the issue with IPO’s… You’re not an insider. You’re going to be buying shares at retail the day it opens. Share’s are going to be pumped up big time. Meanwhile, insiders are going to be trying to be selling like crazy. You’re facilitating making people on the inside rich at your expense.
I’ve been there and done that. I use to work at 3 pre-ipo companies pre-dot.com One company (B2B software company that partnered with Ariba/CommerceOne/etc/etc/etc), A lot of us that joind 1 months right before the quiet period/IPO month had pre-ipo shares at $30/shares… First day of opening was $315/share, and topped off within a month at $450 or so… Guess who was trying to unload while everyone else was trying to buy????? Yup, that’s right insiders. But it’s worse now.
See, back in .com 1.0 days, there was this thing called “lockup period”. Basically, insiders could not be selling shares for the first 180 days after the first day of trading. The purpose of this rule was to prevent massive insider selling, tanking the stock.. The purpose in part is to restrict supply of shares (and to keep prices high)…
Once lockup period expired, insiders tried to sell as much as they could (typically what the vested). And boy did we sell. Within 2 weeks of the lockup period expiration, shares dove from $450/share down to $198/share… Yes, it sucked that the shares fell so quickly,but none of the insiders like us got hurt. Because our shares were at $30/share. Guess who really got hurt? Yup, that’s right all the retail purchasers who paid $450+/share.
And it gets better. The company then tried to impose rules on when employees/insiders could sell.. Employee’s were only allowed to sell within a 10 day window per quarter. They said the reason for this was because the concern of insider information and that it was an SEC rule that made everyone have these trading windows (which was bullshit, because a lot of us had no inside information. We were roughly 500+ employees). A lot of us suspected the real reason was that they wanted to prevent everyone from selling like crazy……So employees came up with very creative solutions.
*Some of the employees that were already fully vested and were sitting on $4million+ options simply quit the company…Pooffff. Lockup restrictions were gone…
*Some of the other employees that were not fully vested, ended up purchasing out of the money put options to cover the unvested stock options, as insurance just in case the stock tanked… For example, if you had 10k options shares that were priced at $30/share but couldn’t exercise and sell for the next 4 years, and the current stock price was $200/share after the lockup period….To protect yourself, you would try to buy 10k worth of put options (100 puts) with a slightly lower strike price say $150/share that would expire months if not 1-2 years out. The put options would be dirt cheap and worthless. But the point was to use it as insurance in case the stock tanked while you were waiting for your options to vest…Well guess what? In less than 2 years, the stock fell from $200/share to $10. and the company subsequently acquired by another company….Again, it wasn’t the insiders that got hurt when this happened…Because while the employee’s stock options were now worthless, the put options they bought clearly wasn’t. Since then, companies actually have some internal policies that tell employees they can’t do that…
Fast forward to web 2.0.. It’s really the same thing…Pump and dump…Only worse…
See remember I was talking about the 180 day lockup window companies use to do to prevent the stock price from initially cratering?? Well, web 2.0 companies have figured out a way around it. It’s called doing a “secondary offering”, in which they reissue shares during the supposedly lockup window…. Guess where those shares for the secondary offering are coming from???? Yup, that’s right insiders….
And if you don’t believe me… Look no further than Groupon and Zygna, who did just that…And why both companies are pretty much flatlined since the ipo…
At one point I actually bought shares of Zygna…But the moment they even mentioned about the secondary offering, I knew EXACTLY what they were trying to do… Because it’s the same sort of game that was played in web 1.0 only worse…Trying to get insiders to sell shares at grossly inflated prices over the retail market.
Now let’s talk about facebook. CEO is a total control freak.. He even said, he’s going to take care of the employees and insiders. Banks/institutions are going to be heavily trying to unload tooo… Who do you think they are trying to unload to?
Until a company can prove it’s earnings for 2-3 years, I’d say you’re really just making insiders rich…There are much better ways to gamble $20k and make money….
Buying $20k worth of facebook shares is a lot less likely to make you rich than it is to make you poorer. If you really think this is going to be a high flyer, you should instead try to get a job at facebook and get insider shares and let other people buy your shares over retail….[/quote]
amazing post. I was not tempted to buy, not even close. But your prediction was almost too accurate. Kudos.
