You inquired about Groupon this morning (as many investors were curious/interested). Groupon went public at $20/share and is currently trading in the $27.50 to $28.50 range the last hour (around 12.30pm EST on November 4, 2011). So we immediately would think, “Wow, I could have had an immediate 40% gain had I invested in the IPO!!! But it doesn’t work that way in reality for retail investors (people like you and me). The stock immediately started trading on the open market at around $27.80 at 10:45am (not $20.00/share). That’s when it officially started trading on the markets. A normal person couldn’t buy the shares at $20.00 (the IPO price).
The shares jumped within minutes to a high of $31.14 and then within 30 minutes dropped hard to $25.90 (the massive volatility that I spoke about this morning.)
So by the end of the day, the markets and the financial press will write headlines that state, “Groupon surges 40+% on IPO” but that is so misleading because anybody that actually bought the stock in the open market paid far more than that. What is more accurate would be to say that “insiders” who owned the private stock were able to sell their shares to an underwriter for $20 who immediately was able to flip them to the general public for $27.80 (that’s how Goldman Sachs, or Morgan Stanley or the investment banks can get paid additional money.)
You can see this in reality by looking at the daily chart on Yahoo Finance or Google. Here’s the chart on Google (may need to be updated to view November 4, 2011) - http://www.google.com/finance?q=grpn#
The ticker is GRPN.
And what maybe could end up written is an accurate story that states something like, “Groupon surges over 40% on IPO, retail investors lose 10% on first day of trading by buying shares on the open and watching them fall by the close of markets…” There were investors who tried to buy within the first few minutes that ended up paying the $31.14 to get their shares. So if the markets closed right now at $28.75, those investors who tried to rush in and buy would be down 7.5%+ on their hot IPO.
And I’m sure there were investors who rushed in as quickly as possible and paid over $30/share, watched the stock drop over the next 30 minutes to below $26, panicked because they didn’t know when the floor would kick in and sold to avoid further losses and within 30 minutes of their hot IPO lost 13% of their investment.
And that’s how people get mislead and scammed. It’s actually a frustrating joke if you ask me because normal people get burned in these types of Wall Street games.
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