Comment by MichaelGG | Hacker News Reader

Comment by MichaelGG | Hacker News Reader

>Twitter and its banker, Goldman Sachs, widely miscalculated demand for the stock

>Those who were able to secure an allocation of shares recognized an instant 73 percent gain

Doesn't sound like miscalculation.

I am confused why this seems to happen, though. I'd have to assume that the people at Twitter have access to more information and advice than I could possibly hope to understand. Even so, they choose to not use an auction or anything, but let GS make a huge amount for themselves and choice customers. There must be some reason these companies' allow their IPOs to be managed that way.

I also do not quite understand how "winning the good graces of the market" means anything. Unless they're suggesting that Twitter is planning on tens of millions of more shares in the future, and hoping a good IPO leads to even higher "long term" share price.

In the case of FB: If FB stock had stayed at $20 or so, would that really affect FB? It'd be less than fantastic for employees and other shareholders that had options or shares, but would it hurt FB the company itself?

Sounds good to me; it seems quite believable that major investment banks would use their positions as trusted advisors to encourage IPO'ing companies to use strategies that benefit the bank. That's what happens you use interested parties as your experts.

The press also seems to cover the stock market mostly as a casino, not as a money-raising or social capital-allocation mechanism. So stock rises==good, drops==bad. So the FB IPO "failed," even though the so-called failure mode actually raised Facebook more cash to expand its business than most alternative outcomes would've.

Investment bankers' job is to allocate tens of millions of shares. Individual investors trade in small 100-1,000 share lots.

Having an individual trade close at $50.09 doesn't mean you'll be able to move tens of millions of shares at $50.09.

But it sort of does imply that. Here's the reasoning -- There's a liquid market of a lot of shares trading hands at $40+. Anybody who bought a share at $26 knows he or she can sell today for $40+. To a first approximation, choosing not to sell at $40 has roughly the same effect as choosing to buy at $40. If the price is supported at $40+, that's at least very suggestive evidence that enough buyers could have been found at that price in the first place.

That $40 floor exists once the market starts trading and there's external confirmation and safety in numbers.

The IPO process is more or less bankers emailing clients asking "Hey, want to buy this brand new company at $26? How about $32?" You essentially have to make a decision without information on how other buyers behave, which forces conservative behavior.

Yea, I get it. I'm just saying it's suggestive, not conclusive.

Does it have to be anything more than a kickback?

Well if you and I are thinking that the people running Twitter are dumb and left a billion dollars on the table, there may be more to the story.

I don't think they're dumb. The stock market is perhaps the most analyzed and quantified human endeavor in history, and at the intersection of science and business I don't see any reason why the explanation isn't likely to be exactly this simple.

Besides, it's not leaving money "on the table," it's handing it to non-company insiders, for the benefit of those who sold into the doubling.

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