unfairness in trading ecosystem

Discussion in 'Trading' started by pinetboltz, Mar 15, 2019.

  1. pinetboltz

    pinetboltz

    we can go more into the semantics if you'd like, but the main points to address are:

    (a) the whole reason facebook's ipo was seen as 'failure' by public was because the price/ market cap fell for months after the stock opened on nasdaq for trading

    (b) at their ipo in 2012, the market cap/valuation was for $104 billion

    (c) that means from their founding in 2004 to their ipo, the valuation of the company went up $100+ billion

    (d) the ipo is just the liquidity event for early investors/founders/ employees. it literally doesn't matter what give or take few millions someone left on the table in the last days around the ipo itself -- when there was already $100 billion of valuation increase fully enjoyed by the early guys who got access to those private shares

    (e) the guys who added super wealth to their fortunes did so because of the valuation increase from 2004 to 2012, not by finagling some share allocations in the few weeks around ipo -- like Peter Thiel didn't become a billionaire by daytrading a few lots of FB when it opened on nasdaq, he did so because he was allowed the opportunity to invest in FB with private shares - thats the whole point

    (f) the unfairness is that only some investors are allowed access/ given opportunity to invest in private shares. i mean, if you compare the return of the private shares from 2004 to 2012, using the widely reported capital appreciation from Peter Thiel's investment of $500k to $1 billion, that would be 2000x over 8 years, it just absolutely makes the return of the public shares during the 7 years since ipo seem like small potatoes, and that's just for the stock of a company which is the foremost example of FAANG stocks. the return differentials on private vs. public shares in other companies are probably just as big, if not even wider
     
    #11     Mar 16, 2019
  2. tiddlywinks

    tiddlywinks

    @pinetboltz

    For purposes of this convo, there are 2 ways a person can attain shares of a PRIVATE corporation...

    1) Provide a service, perhaps through employment, in exchange for wages and/or shares.

    2) If private placement funding is desired by the corporation, participate as an accredited investor. Depending on the terms and federal/state/local laws and SEC rules, a small number of non-accredited investors may also be allowed. Additionally, private placements and other methods of raising funds can occur without any intent whatsoever of an IPO offering. An IPO itself provides funding. And there are no metrics or rules or laws that mandate a private company must become public.

    Bottom line... YOU ARE NOT ENTITLED ACCESS TO SHARES (EQUITY OWNERSHIP) OF ANY PRIVATE CORPORATION, NO MATTER THE GROWTH RATE OR VALUATION, OR ANY OTHER METRIC!!

    You want shares in a startup... provide a function or service in exchange for shares.
    You want shares in a private placement... qualify as an accredited investor.
    You want shares of a hot IPO... be a worthwhile account to one of the IPO underwriters.
    You want shares because you think the system is unfair... move to Venezuela.
     
    #12     Mar 16, 2019
    speedo likes this.
  3. MattZ

    MattZ Sponsor

    Sometimes it's the exchanges that change the margins, and brokers have to comply with it.
     
    #13     Mar 16, 2019
    pinetboltz and Overnight like this.
  4. sle

    sle

    The startup world is littered with people that lost their pre-IPO shares when they where fired, got into a scrap with VCs etc. Pre-IPO equity is a very murky market and I, presonally, think that it sucks unless you are a true insider (either a founder/BM or a senior VC).

    Well, there is a point to be made about fairness of the non-public markets. It used to be that a brand new listing has a lot of growth potential even after it goes public. In the recent years, companies went to market at the valuations where most of the explosive growth is already priced in. I.e. instead of ECM, the companies now live in the VCM for a really long part of the companies life cycle. That implied lower transparency, lower accountability etc. In short, it's not necessarily a good trend.
     
    #14     Mar 16, 2019
    pinetboltz and newwurldmn like this.
  5. sle

    sle

    #16     Mar 16, 2019
  6. tiddlywinks

    tiddlywinks

    And I submit, that a BUSINESS can renegotiate employment, including wages, options, shares, etc WITHIN THE EMPLOYMENT (and other) LAWS of the particular jurisdictions, INCLUDING firing. I point out too, that employment agreements and contracts must be agreed to by both parties... all parties can negotiate the offer. Or not accept the offer.

    Who's to say that "most of the explosive growth" is already priced in? The market determines the worth. Investors (in IPO or post-IPO shares) have the choice to participate or not at the given public pricing. If I recall, FB (since the OP uses that as his benchmark) fell out of the gate because they did not have a "mobile" strategy among other IPO subscription issues, followed by an initial lock-up period coming due. All except the IPO subscription issues, were transparent in black and white, in the prospectus.

    A quick search, and it seems the FB IPO subscription issues were (at least) partly caused by the NASDAQ exchange itself... taking that to the extreme, the high profile IPO was just a conspiracy against the little guy, no matter what the prospectus spelled out. Reputation and confidence be damned. LOL!
     
    Last edited: Mar 16, 2019
    #17     Mar 16, 2019
  7. comagnum

    comagnum

    The post IPO market offers great trading opportunities with out the risk of being in a dog in the lockup period.

    Take Roku for example the big move was over a month after the IPO, which is not uncommon.

    upload_2019-3-16_11-25-49.png
     
    #18     Mar 16, 2019
  8. I got offered a.0.5% stake that could be diluted as the tech lead for a "potential hockey stick fintech." I did the math and it turned out that I could earn the most optimistic result (including further rounds) in 3-4 years without working for someone. Turns out the only hockey stick they saw were the ones at the sports store. Still do not have a single customer. What really broke the camels back was when I asked the founder who his competition was, he said no one. LOL what chimps.

    Assume your private stock or options are worth zero.
     
    #19     Mar 16, 2019
  9. CSEtrader

    CSEtrader

    If you are treated fairly, according to the insidery standards, which I assume most of the posters are enjoying and have no idea of how those banksters treated us, newcomers.
    The topic of this thread should include more themes, which I hope, OP will agree.
    Here is my account, coming from our direct experience and war.
    It looks like I am coming from another planet, from another reality', where most of ET's posters have never been and choose to not believe that it exists or do not care.
    To summarise:
    - for the huge part of the world except USA, Canada, UK, Australia and some skilled advanced Europeans, the markets are wild places to avoid. No one is bringing this knowledge in large scale to the rest of the world, which would increase the number of participants, volumes, fairness;
    - the novices, like us ten years ago, find themselves trapped in Swiss and other "trusted" money managers traps: theatrical scenery, where newcomers most likely will never test real market environment. This creates double damage: the market losing volumes from novices; potential new players will most likely never come on, being discouraged by first hits insinuated artificially, which distorted them from reality of the markets, maybe forever; making them haters of trading etc.;
    - the weak old mentality/practise to prosper from privileged position, which became illegal after Madoff's case, looks to not be punished yet. And it is hard to describe how much damage it creates on those who can be one of us, traders. And the simple balance of fairness: why are those dump money are held in white collar criminal's desks, without ever reaching market, where we will profit from them but in the meantime they will learn?
    - churning, fictitious trading becomes illegal. But more names about industry's loop holes still need to come up
    - in the short time I am here, there were at least two threads with the traders to be , exposing to be scammed by fake brokers, who allegedly made them believe they were participating in USA's markets, USA's listed securities. It looks like this type of "business "is not yet persecuted, and from other side there is very little solidarity among traders, when this scenario happens.
     
    #20     Mar 16, 2019
    comagnum likes this.