Interviews with Digital Media Thought Leaders
The IPO Market For Common Stock
Podcast Audio | Posted by Phil Leigh on October 18, 2007
If you would like to learn some secrets about the IPO market from someone who earns a living by providing ratings on them, this interview is for you.
Our guest today is Scott Sweet who is the Founder of IPO Boutique. His company provides investment ratings on IPO’s and he has been “trading IPOs for 35 years.” Over that time Scott acquired significant nuanced, but important knowledge that you won’t find in the textbooks. Although today’s interview is not about Digital Media per se, many in our audience may ultimately have a stake in the process. Examples include the CEOs of privately-owned Digital Media companies, venture capitalists, and institutional investors, among others. Since our guest today is often quoted as an IPO expert in publications such as the Wall Street Journal, his insights can be particularly helpful when trying to make sense of the IPO market.
In essence, there are two fundamental opposing principles operative in the IPO market. One can result in an attractive investment and the second might cause an IPO to be a bad investment.
Proponents of the first principle argue that IPOs are typically attractively priced because a favorable price incentive creates the demand for investors to buy the shares. This, they explain, is why the shares tend to immediately rise in value once the IPO allotment is sold out.
Proponents of the second principle argue that the large interest in IPOs is induced because the fees earned by the investment banks are so much larger than those earned on ordinary stock transactions in the secondary market. It is this monetary incentive, they argue, that generates the added interest in selling the shares thereby creating tenuous, and sometimes, artificial demand.
We believe both principles can be operative. Perhaps that is why investors subscriber to services like those offered by our guest – they seek to know which principle is the more applicable to each situation.
Categories: Podcast Audio
Tags: Initial Public Offering, IPO, IPO Boutique, Scott Sweet, Stock Investing, Stock Market, Underwriting Stocks
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