OCT
23
2011

Why does Wall Street pump out Crappy IPOs? Cuz you want it!

(Interloper) “There is no conspiracy as to the selection of IPOs and secondary offerings beyond popularity. They are giving you what you want, what they can sell, and in a number of instances its crap, either in terms of objective business quality or the valuation levels stipulated at issue.”

“It is an axiom among professionals marketing investment ideas to long-only funds or individual investors (for all their faults, hedge fund managers are much better at this) that you know you have a great investment idea when it is completely unmarketable. Publish as many copies as you want, but stock ideas in out of favor sectors will sit and gather dust until the paper rots. What sells, both in term of ideas and new stock, are those in sectors that have been gapping higher for the longest time, despite the risk that said trend is nearly exhausted and valuation levels are approaching the ridiculous.

“When you’re young, you look at television and think, There’s a conspiracy! The networks have conspired to dumb us down. But when you get a little older, you realize that’s not true. The networks are in business to give people exactly what they want. That’s a far more depressing thought. Conspiracy is optimistic! You can shoot the bastards! We can have a revolution! But the networks are really in business to give people what they want.” — Steve Jobs (1996 Wired Magazine Article, Steve Jobs: The Next Insanely Great Thing)

“Referring back to Jobs’ quote, the fault is not in the networks or the investment banker, it’s with the audience.  If PBS started getting monster ratings for in-depth, intelligent documentaries, the other networks will quickly follow suit.  In exactly the same way, if investors stopped buying secondary offerings in hot sectors, which they freaking know is a bad idea but can’t help themselves, and entertained the better risk/reward potential of out of favor ideas, they would get more of them.

Full Story: Zero Hedge, Steve Jobs and who’s really responsible for the despicable cesspool of new stock issuance (Interloper)

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