Go Ask Alice

One pill makes you larger
And one pill makes you small
And the ones that Mother gives you
Don’t do anything at all
Go ask Alice, when she’s ten feet tall

— Jefferson Airplane, “White Rabbit”

“Life’s a box of chocolates, Forrest. You never know what you’re gonna get.”

— Forrest Gump


Well, Children, it’s silly season again. Yes, that’s right: Twitter just filed an initial registration statement (or S-1) for its long-awaited initial public offering. Confidentially. And commemorated it with a tweet on its own social media platform, of course:

Tools.

* * *

This of course means every numbnuts and his dog are currently crawling out of the woodwork and regaling us with their carefully considered twaffle about what Twitter is doing, what it should do, and how much money we’re all going to make buying and selling Twitter’s IPO shares when and if they ever come to market. A particularly amusing sub-genre of said twaffle consists of various pundits of varying credibility and credulousness pontificating on what Twitter is actually worth, as if that is a concrete piece of information embedded in the wave function of quantum mechanics or the cosmic background radiation, rather than a market consensus which does not exist yet because, well, there is no public market for Twitter’s shares.

But there seems to be something about IPOs that renders even the most gimlet-eyed, levelheaded market observers (like Joe Nocera, John Hempton, and... well, just those two) a little goofy and soft in the head. Perhaps they just can’t understand why such an obvious and persistent arbitrage anomaly as the standard 10 to 15% IPO discount on newly public shares—which everybody seems to know about even though they can’t explain it—persists as it does. Or why, given how many simoleons the evil Svengalis of Wall Street get paid to underwrite IPOs, there are so many offerings that end up trading substantially higher (e.g., LinkedIn) or substantially lower (e.g., Facebook) than the offer price they set once shares are released for trading.

So, out of the bottomless goodness of my heart—and a heartfelt wish to nip some of the more ludicrous twitterpating I expect from the assembled financial media and punditry in the bud—I will share here in clear and simple terms some of the explanations I have offered in the past.

by The Epicurean Dealmaker |  Read more:

Image: uncredited