The Lyft IPO is Rigged!
The Lyft IPO is Rigged! BY ZACH SCHEIDT for Daily Reckoning
TDC Note – Now there’s a surprise, something rigged in the equities market!
Consider this alert your fair warning.
This week, you’re going to see A LOT of publicity dedicated to hot technology companies like Lyft, Uber, Pinterest and Airbnb.
That’s because all of these companies (and a few more) are on deck to go public through an initial public offering (IPO). This is typically how new stocks are added to the market and how individual investors like you and me can invest in new companies.
However, today I’m warning you to ignore the hype.
That’s because when it comes to IPO investing, Main Street investors like you are ALWAYS at a disadvantage…
Here’s What You Need to Know About the IPO Market
Let me start off by saying that I have a lot of experience with IPOs.
Back when I was at the hedge fund, it was my responsibility to handle all of the IPO business that our firm took part in.
I would go to the road shows, grab lunch with the executives of the new companies, place calls to the brokers in charge of the deals, and I would literally call in favors that were owed to our hedge fund to ensure the best treatment possible when it came to the hottest deals.
So when I say this market is rigged, I know exactly what I’m talking about.
Here’s how the typical process works…
A company decides that they want to sell shares to the public for two primary reasons:
Reason #1 To Go Public — The company wants to sell shares to raise capital so they can open new stores, hire more workers, or become a stronger business.
Reason #2 To Go Public — Company insiders — AKA founders and private equity owners who got in before you or I ever had a chance to invest — want to sell part of their position at a top-dollar price to lock in a big profit.
Unfortunately, the latter accounts for a large portion of these transactions. And unsuspecting individual investors who buy these shares are usually the ones handing them their profits.
That’s because the men and women on Wall Street — with their millions of dollars in research capabilities and their endless connections — know exactly which IPOs are strong businesses looking to grow and which are full of insiders looking to cash in on their investment.
You on the other hand probably do not have these insights, which puts you at a serious disadvantage when it comes to making money from these exciting transactions.
But that doesn’t mean all hope to cash in on IPOs is lost!
Here’s How YOU Can Profit on the Market’s Hottest New Stocks
To profit from the market’s hot new stocks — like the Lyft IPO that is getting so much attention right now — you need to know how Wall Street approaches these events.
Most Wall Street firms get their allocations of new stock at one price from the broker, for example $35 per share. Once the stock starts trading in the market, the successful ones move sharply higher — maybe starting to trade at $45 or more.
Therefore, these institutions have a BIG incentive to sell these shares and lock in a profit. And that’s what they do!
So you don’t want to be buying in the first few days or weeks after a successful IPO prices. Because in other words, the big institutional investors are SELLING.