- Wall Street hype machine cranks up for Lyft launch
- Why most IPOs are a rigged game — and the smart way to play it
- Stocks stall, Treasury rates notch new lows
- So much for “the biggest trade deficit in over a decade”
- Stupid airline advertising tricks, sex tourism edition
- A hidden agenda with the new tax forms?
Good lord, the lambs are being led to slaughter. And the mainstream financial media couldn’t be more elated…
“Lyft Inc. is expected to price its shares above the targeted range for its initial public offering,” says this morning’s Wall Street Journal, “in a sign of strong investor demand ahead of the ride-hailing service’s imminent debut.”
Before shares begin trading Friday morning, the IPO price will be set tomorrow afternoon. The Journal’s sources are pegging that price in the low $70s per share — higher than Lyft’s previous target range of $62–68.
The atmosphere among Wall Street pros is positively giddy. After a dearth of high-profile IPOs in recent months, the pipeline is more than full now.
And the biggest buzz surrounds the “tech” names. On the heels of Lyft, there’s its bigger rival Uber! And then Airbnb! And Pinterest! And Slack!
“There is significant scarcity value associated with these companies,” Rohit Kulkarni tells the Financial Times. Kulkarni is head of research at Forge, which the salmon-colored rag describes as “a marketplace for trading private shares.
“These are very large companies with multibillion-dollar revenue bases,” he continues. “We can argue about unit economics and profitability, but these companies are here to stay and that will translate into greater hunger amid public equity investors.”
Given Kulkarni’s job description, we can see why he’s licking his chops…
“THE GAME IS RIGGED!” warns the email from our Zach Scheidt. We’ve preserved the all-caps in the interest of authenticity.
“When it comes to IPO investing, Main Street investors are ALWAYS at a disadvantage,” he says.
If you’re a longer-term reader, you already know this. As our resident quant Jonas Elmerraji likes to quip, the best time to get into an IPO is before it goes public.
No, seriously, that’s when the big money is made. Too bad you as a retail investor are shut out. Yes, that’s how the system is designed.
So today, while the buzz is building, it’s a good time to review how the process works — the better to curb your enthusiasm. This is the stuff CNBC won’t tell you.
Zach knows the IPO process first hand from his hedge fund days: “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.”
Zach says there are two reasons a company might choose to issue shares to the public…
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- “The company wants to sell shares to raise capital so they can open new stores, hire more workers or become a stronger business.
- “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.”
If you suspect it’s No. 2 that comprises the bulk of IPO transactions, you’re absolutely right. “And unsuspecting individual investors who buy these shares are usually the ones handing them their profits,” says Zach.
“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.”
Still, there’s a smart way the little guy can play IPOs. You just have to know how Wall Street approaches these events.“Most Wall Street firms get their allocations of new stock at one price from the broker,” Zach explains. “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 price. Because in other words, the big institutional investors are SELLING.”
That’s when IPOs start to get interesting if you’re not a high roller.“Wait a few weeks and after the dust settles, these same institutions start building their real positions,” Zach goes on.
“This happens after they get a chance to do all of their research, see how the stock is trading and check in on the managers and see if anything has changed since the company went public.
If these institutions still like the stock after all of this research, they start buying stocks over time.
“That’s when you want to jump in with them and ride the stock higher — not when the stock is hyped up on its first day of trading.”
And that’s how you avoid massive IPO disappointments like the two big busts of the last couple years — Snap Inc. (SNAP), the maker of the Snapchat app, and the “meal kit” outfit Blue Apron (APRN).
Zach’s bottom line: “The whole IPO game is rigged in favor of the big guys on Wall Street.
However, with the right playbook, you can still make money alongside these investors over time. You just need to be patient.”
So forget the IPO ballyhoo this week. If you want the sort of life-changing gains the IPO hypesters promise, you need to investigate a different niche of the stock market.
Which is exactly what Zach spent much of last year doing on your behalf. What he found blew away the top leadership here at Agora Financial. We bet you’ll be stunned as well.
Give our findings a look right here. They’re available for your review from now through midnight tomorrow.
Wall Street is tiptoeing into negative territory at the midpoint of the wAt last check the Dow had inched lower on the day to 25,652. The S&P 500 and the Nasdaq are likewise in the red but not by much.
Gold has pulled back a hair to $1,311. But Treasuries have resumed their rally, pushing yields down. The 10-year is down to 2.39% — another low last seen in late 2017.
At the risk of going all I-told-you-so on you… we’re compelled to point out the big economic number The January trade deficit clocked in this morning way less than expected at $51.1 billion — down sharply from December’s $59.9 billion.
Rewind three weeks to when that December number was released: The total was the highest since October 2008. The financial media were quick to point out that wasn’t exactly the outcome Donald Trump was expecting when he launched a trade war in earnest last year.
What they failed to point out was that many companies were stepping up their imports of foreign goods, especially from China, in anticipation of tariffs that would raise import prices. Stocking up while prices were still low, in other words.
With that process more or less over, the trade deficit has shrunk far more than most of the “experts” were counting on.
Don’t get us wrong. There’s still ample risk out there from an escalating trade war… but the caterwauling about “the highest trade deficit in more than a decade” was the proverbial nothingburger.
This won’t go down as one of the finer moments in airline advertisi
We’re sure that the budget airline AirAsia is filling an unmet market need by flying direct from Brisbane, Australia, to Bangkok, Thailand.
But really, guys? (It’s gotta be guys who came up with that, right? Maybe the same ad agency Spirit Airlines has?)
As you might be aware, Thailand has “earned a reputation of ‘vice paradise,’” as the AsiaOne website delicately puts it, “which its tourism board wants to shake off.”
The backlash is more than the airline can withstand: “AirAsia can confirm the advertising campaign has ended,” reads a statement to the BBC, “and we instructed our media partners to have the advertising removed as soon as possible today from all locations.”
“I’ve prepared my own tax returns since I was a pup,” reads a tax-season entry in the mailbag from one of our semiregulars. “Helps me stay focused on how much the gummint is taking rather than the size of the refund.“For those of you that don’t do the same, this year the feds in their wisdom eliminated the short-form individual tax returns and forced everyone onto the regular 1040. B-U-T to make it easier, y’know, they reduced the basic 1040 to two half-pages and spread the rest of it over six new ‘schedules’ to be included with the basic return as necessary.
“I’d heard about this before starting on my returns. Turns out the ‘schedules’ are just chopped-out pieces of the old 1040 — mostly using the same line numbers and everything. Some extra hours with the spreadsheets and the usual cursing of K-1 forms and all was good. But it was a relief to get to my state’s tax return, which hadn’t changed much from the previous year.
“Until I got to the list of the federal schedules and forms they wanted me to include with it. This year they want copies of any and all of those six schedules’ worth of stuff that used to be that nice turquoise-tinted Form 1040.
“My state tax people didn’t seem interested in that information when it was on the actual Form 1040. Why do they want it now (and what might they be thinking about doing with it)?
“From The 5‘s voluminous store of knowledge, is there any history (reasons/precedents) involved here, anything that can or is being done about it?
“At the very least, here’s a heads-up to the rest of your readers that their state may be gathering more tax data on them then they realize.
“P.S. Fourteen–15 years ago I did, with the consent of my wife, beat back a demand by a city taxing authority for copies of the first page of the Federal 1040 with their tax return, but that situation was a lot more clear-cut (‘you don’t need this information to perform your function’) and it was just a small city rather than an entire state. I’d really rather not take this one on single-handed, thank you.”
The 5: Hmmm… You’ve got us stumped.
That said, according to a 2016 survey by GoBankingRates, you’re one of only 8.5% of tax filers who use the IRS forms and run the calculations yourself. A plurality of 36.8% use an accountant or an outfit like H&R Block and wouldn’t know anything’s changed.
Ditto for another 34.5% who use TurboTax or something similar. Your editor certainly didn’t notice the change — which cursory research reveals is a sly way the architects of the new tax law could claim to fulfill their promise of a “postcard-sized” 1040. Ugh…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Tax Day is less than three weeks away. Which means there’s still time to take advantage of the information you’ll find in the Rich Dad 2019 Tax Guide — prepared by Robert Kiyosaki and his crack team of tax experts.
It’s packed with 91 hints to maximize your refund — or minimize what you owe. The “paycheck loophole” on Page 17 alone could be worth $13,000 or more.
You can claim your FREE copy — we’ll even spot you the shipping — at this link. No long video to watch, either
P.P.S. Even if you’ve already filed, these tips and tricks could prove so lucrative you’ll want to file an amended return. Check ’em out.
