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Google IPO Swami
The Google IPO Swami writes: "I'm running an experiment and Slashdot readers would be good contributors. As you may know, Google recently announced that they will be using a unique dutch auction structure to price shares of their IPO. Instead of having the underwriters determine the opening price, the price will be set by the demand of investors that register to participate. I'm interested in how well the public can estimate this demand and the price of the shares to be offered. I'm giving away free shares in Google to find out. The person that comes closest to estimating the opening and closing price of the stock on the IPO date will win shares in the company."
Martha Stewart has some "special" information she passed in to me.
NO GMAIL FOR YOU!
The contest entry form has some interesting subtexts to them...
3. Do you intend to place a bid for shares in the Google IPO? (Yes/No)
4. What price will you bid for Google shares? Enter 0 if you do not intend to bid. The value must be between 0 and 999, inclusive.
5. How many shares do you intend to bid for at this price?
Enter 0 if you do not intend to bid
There's the true motivation for this exercise. The person running this contest clearly states on his site that he's going to try to sell the results of the survey to people who want to have some way of peering into a crystal ball and determining what people would be willing to pay for Google before the dutch auction price is determined.
The day-trader investors who ususually love IPOs hate this Dutch Auction system because it gives them less room to try to buy up the early shares and then sell them the same day to people who wished they had gotten in on the IPO and are now willing to pay more to get their shares at market prices. (Smarter investors would place a limit order rather than a market order and just wait for the day-one spike to wear off and the price to be more in line with reality.)
11. Would you like to be contacted by someone to help you bid for shares in the Google IPO? You will receive one email if you say Yes. (Yes/No)
Talk about "highly targetted e-mail marketing list." That's sure to go to the highest bidder too...
This guy most certainly has a right to make a buck... we just should be smart enough consumers to realize that he's doing so by running this, and possibly withhold our information if we deem it too valuable to hand over.
I guess the price will be somewhere near $250 per share on the day of the IPO and down around $1.94 about 4 years later. Be careful when investing in those tech stocks, you can get seriously burned. But this is just a guess, IANACPA or investment advisor. YMMV, void where prohibited.
I have a get rich quick scheme and I need your help. Those helping me can be at the bottom of my pyramid scheme, and will get millions of dollars, 3" of wang and all the heart meds you can count with a Cray. Just invoke my ip and I will make you a nigerian just for clicking. I promise....really
Slashdot, where armchair scientists get shouted down and armchair theologians get modded up.
HOW MANY shares?
It's right there in the FAQ. 10 shares.
does this person really think that getting wild guesses from thousands of non-investor types will help him determine anything?
Why should he care? He's just trying to figure out what a large number of people are willing to pay for Google shares, so he can game the auction.
Information: "I want to be anthropomorphized"
Opening Price: 75cents
MiddayHigh: 150 dollars.
Closing Price: 25 cents.
No, no, no, you got it all wrong. Winning is certain:
/wonders if a few minutes to write the script is worth it for a few shares...
Two 0-999 ranges
i.e. 1000*1000 possible combinations Need 1,000,000 submissions to 'win'
Spamgourmet.com allows dynamic forwarding
g000000.2.name@spamgourmet.com
To
g999999.2.name@spamgourmet.com
Here I come!
What happens when a large number of people realize this and it artificially increases the price?
If too many people bid $500/share... then the cutoff price will turn out being something like $400/share, which will likely be artificially high considering the true value of Google.
You'll pay $400/share to get a ton of shares, but then only be able to sell them at their true value which the market will quickly realize is in the sub-$100s. What a way to lose 3/4 of your money!
That's the key of this Dutch Auction system. Instead of the lucky few with the right connections getting a pre-market chance to buy at a lower-than-fair-value price, this takes a stab at determining the fair value before the first shares are distributed. If too many people try to drive the IPO price upwards, everyone will find themselves holding shares that they'll only be able to sell at a loss.
The "I'm smarter-than-you, so I can make a quick buck off this..." gang is really better off sitting this one out.
I just realized - he's doing a bayesian average!
http://www.research.att.com/~volinsky/bma.html
There was a possibly apochryphal story about this. A plane went down in a large area, and they needed to find it. Nobody really knew what happened to it. The leader of the search team went and asked a bunch of pilots where they thought the plane was, after giving them the course, heading, speed, and whatever data was available.
Well, they took the answers, narrowed the search area, then found the plane pretty much where the consensus said it would be.
A bit of thought will give you the reason this might have worked...
See, if Google released but a single share, that represented 50% of the company, I bet that single share would be measured in billions of dollars.
If they release 100 Trillion shares, my guess is, fractions of a penny will be the value.
Now it is a good idea to keep your stock price in the $5-$25 price point as it's then a pretty liquid stock, because most investors can afford lots of 100 (generally the smallest unit stocks are sold in by brokers, breaking a lot costs you extra). Institutional investors like pretty liquid stock prices, as they can get in and out of them pretty easily. I know that AT&T was considering doing stock splits to get their price back to about $10 not too long ago specifically to make it attractive to institutional investors.
If you are interested in long term investors only, you avoid stock splits, and keep the price going up. Look at Berkshire Hathaway for an example of this. There shares are worth about $90,000 for the "good ones", and about $6,000 for the "Baby Berks". They specifically never split, and never offer a dividend. It's an interesting model.
If you want to use a single metric to define if a company is worth something, at least use P/E. That's at least something kinda, sorta rational. It takes into account the number of shares, and generally there is an acceptable P/E for any given industry. The P/E of IBM and google could exactly the same, and have IBM's stock at $15, and Google's at $80. You deride that, but any serious investor would realize that the stock price has nothing to do with the value of the company. It's the stock price, and the number of shares that starts to tell you something intelligent. (I believe that number of shares, times the share price is the market capitalization).
Kirby
I submitted this a while back, and it was predictably rejected, but if you really care about the Google IPO, take a gander at this article: