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Why Wall Street Wants Google to Fail
Sam writes "The most anticipated initial public offering in years threatens to derail a cherished gravy train, where underpriced shares are handed out to favored investors and grateful CEOs."
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Wall Street is in the power circle and want to keep it closed. Radicals, such as the people who operate Google, are to be kept out. Greedy individuals interested in human interests and making real products have no business on Wall Street (according to Wall Street).
Okay, let's look at what Google has:
1. Lots of public information (stock charts, news and webpages primarily)
2. Lots of private information (what users are search/researching)
3. Lots of computer scientists and programmers good at working with lots of data
4. Tons of computer power
You combine these elements, and you have a group of people that might be able to make sense of some of the chaos in the financial markets. They could get RICH! Fear the Google.
As much as the media hype surrounding this offering has tried to present the image that the little guy can take part it simply is not true.
Most of the brokerages that will be offering this to the "public" still require substanital assets in the account, most with a 100,000 dollar min.
One rare thing about Google is their "Don't Be Evil." mantra, which somewhat translates to the company turning down the chance to make quick bucks today in the expectation that they'll get that money back in the long run through their near-flawless reputation.
Reminds me of that part in the Simpsons where Lisa (newly crowned Lil' Miss Springfield) is addressing a college football stadium:
Lisa: "College football diverts funds badly needed by education and the arts!"
Nerd in bleacher: "Is that true?"
Other nerd: "Let's get 'em!"
(Nerds start charging after the football players in the field)
Nerds: "Reeeee! ereeeee! reeeeee! reeeee!"
It would be cool if it didn't suck.
Really, the IPO process is something that'll make a few people happy and a few people not so happy, and then will just plain be forgotten about. The differences between the dutch auction and the typical IPO process will matter in the days immediately after the stock comes out, but then will just fade into the background as the market determines the actual value of the stock through day-to-day trading activities.
.com's that ulitimately crashed and burned, but I don't think it'll have any effect on Google's stock in the long term. Most of us normal people invest in the stock market for the long term, and should in general wait for the post-IPO price to become stable before deciding on if we want in on a particular stock.
It's an "in your face" shot to the IPO industry that profited on the
Of course, if the reason is because then then Wall Street will ignore the stock and no institutions will recommend it, well, maybe that's a great reason not to do this. After all, it's not uncommon in other contexts to pay a 7% commission to someone who can get you a good price. I guess we'll have to wait and see whether not giving the Wall Street folk their usual vigorish is worth the risk.
Disclaimer: I work for a company, but I don't speak for them.
There was a recent slashdot article about predicting financial patterns. Google has the tools and personnel needed to pursue this if they wanted to....
These market makers have just as much contempt for the individual investors. Wall Street is all about the control structure and every level of it getting its own piece independent of whether anyone else is making money. You will see these fights as attempts to use technology to get real free and fair markets steal more and more power from "Wall Street." They're like the RIAA protecting their financial distribution networks from outsiders who seek to streamline all the crap between the buyer and seller.
I for one as a day trader, will not be purchasing GOOG for a long time.
It figures. Day traders do no good to the companies they invest, other then to demand immediate profits at the expense of long term solubility. Good riddance.
Second, why are they demanding share prices in the $100 range when Ebay/Yahoo (company's with more value) are priced significantly less than that?
As a day trader, I'm sure you know that the price of the individual share has no individual impact on the total value of the company at all.
This sig has been deprecated.
If Google had done that, then the stock would have started high and then crased as time moved forward to today. From Google's present owner's point of view that wouldn't be that bad a thing, but it'd be a disaster for everybody who bid what turned out to be an overpriced value to get their shares.
The whole point of the dutch auction setup is to assure that if anybody makes a quick buck out of a market malfunction, it's the people are selling their shares in the first place. Having a stock double or triple on IPO day is a sign that the IPO price setters blew it... they could have charged double or triple in the first place and found people who would have paid it. The quick profits in that situation go to the "IPO Insiders" who bought the shares at the original IPO price and were able to make quick turnaround sales... since the average investor has little chance of getting in on an IPO that way, it's not really fair to the little guys.
The people with most of the money in the world don't like this idea, because it threatens their power, and they are likely to do more than just spread rumors to derail any such thing.
There are a multitude of ways to depress a stock price. As Warren Buffett has said, in the short term, the stock market is a voting machine, and in the long term, it's a weighing machine. The Guys with the Money have a LOT of "voting" power.
Over the long haul, this won't work -- you can't artificially hold a stock worth X amount of money very far below X forever. But they don't NEED forever. If they sell short, bigtime, and can hold the price down for a year or so, then they win... everyone thinks Dutch Auctions are a losing proposition.
The guys doing this could very well take a serious bath (short sales and derivatives are dangerous), but they may figure this as a cost of doing business.... if this idea takes hold, it could cost them a lot more than the few hundred million dollars they might lose on this manipulation.
Because of this, I fully expect that the Google IPO shares will drop fairly dramatically once they go on public sale. Personally, I'll be looking to buy in the aftermarket.
The original article explains exactly why market analysts are trash-talking Google and the upcoming IPO: They don't want the Dutch auction system to cut them out of the picture.
Your claim that Linus made millions using precisely this system is incorrect. Yes, Linus was allowed to buy stock at bargain basement prices, and he earned a ton when the various Linux companies IPO'ed. The difference is, Linus was closer to an employee than to a traditional investor.
Here's the way I understand the situation, and please correct me if I'm wrong: When a company says, "We're expecting to go public at $5 a share, but we'll let Guybrush Threepwood buy a thousand of them at $1 a share," then the company is agreeing to give up $4000 of the money they could have received from the IPO. But when a stock brokerage says, "We're expecting this IPO to be worth $5/share, but we'll tell them to offer the shares for $4 so our investors will love us," they're taking 20% of the money that should have been obtained from IPO and putting it directly into investors' pockets. That's underhanded, and maybe even technically illegal. But it's what brokers do to keep their investors coming back for more.
You want the truthiness? You can't handle the truthiness!
Don't be stupid. "Don't Be Evil" doesn't instantly mean "Don't Be Smart". They know what they're capable of, and earning lots of cash is a pretty obvious thing.
With google's ubiquity in almost everyone's daily internet life, the potential for misconduct is staggering. The fact that they haven't abused their position yet makes me proud of the fact that i can afford exactly 1 share of their stock right now.
No, but the fact they use the scientific method does in fact make it a science. That should be the cornerstone defeinition of a science; does it use the scientific method.
Perhaps the problem in realizing it's a science for some people is how it's taught in high school and undergraduate classes. Just think back to your major/PhD/whatever. People just generally aren't sophisticated enough, or have the correct tools, or whatever to deal with learning the whole theory in HS or even undergrad. Thus, simplifications are made, and those theories are just put forward almost as axioms. Once you get to the fore, you see that it is indeed a science.
I know; I'm starting research in Economics as a PhD student now, and leaving out the details, I am looking at data, formulating a theory for how people behave, seeing if it fits the data I'm looking at, then looking at other data/situations to see if my theory predicts that data correctly. If that isn't science, I don't know what is (and I have spent time in Physics. Sure, the math is more complicated, but the process is no different).
Now, I'm talking about Economics, not all the other social sciences. I have a feeling it may be true there as well. But to continue to call Economics not a science is either ignorant or egotistical. But of course, there aren't big egos in the IT/Science community.
Oh, well, I do see the comments attacking the fact Economics is a science get +5, but the comments pointing out the fallacy are still stuck low. So, guess there is a little ego out there. One line attack gets +5 Informative, and a thought out rebuttal is stuck at 1 or 2. You should really try to be unbiased...