Comment by jerf | Hacker News Reader

Comment by jerf | Hacker News Reader

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Putting aside the questionable nature of Groupon's IPO discussed ad nauseum here, this trick of only selling a very small part of the company in the IPO to keep price high by restricting supply seems, for lack of a better word, strange. So, I buy some stock at a price inflated by the lack of supply as the company puts 5% of itself out there. For the supply-restricted price to make sense, though, I have to believe that either the supply is never going to be expanded by the company putting more pieces of itself out there on the market, or that I'll get mine in dividends before that happens. (Or that I can unload it on another sucker, but for the sake of analysis I'm trying to discuss the real value in terms of dividends and percentage of company owned rather than the gambling side.)

Well, obviously I'm not seeing any dividends any time soon for something like Groupon. What happens when more of the stock trickles on to the market? (How much of the company will become available as employee stock options?) Or if Groupon puts another 5% out there? What happens when the supply expands?

It seems like this is the sort of trick that's only going to work for a little while.

That argument is sort of like a chess strategy that starts with "If I get four moves in a row, I can checkmate my opponent."

Nobody is denying the basic facts you've cited, so it'll be very hard for you to find someone whose ignorance of those facts you can use to your advantage. Groupon won't be as liquid as, e.g., AMZN. But buyers and sellers both know that.

And selling pressure is intrinsically short-term; Groupon's underlying value is completely independent of the number and motivation of selling shareholders. In a Bayesian sense, you could respond to insider selling--except that insiders are almost always selling, and the more successful the company is, the more they ought to sell. The biggest insider sellers are, by necessity, the founders of the biggest and most successful companies.

I would think something more like "If my opponent is going to get four moves in a row, why should I play?" is more what I was going for. I'm not trying to screw other people over, I'm trying to figure out why I'd play this game at all.

I'm as big a believer as you're going to find in rational markets, but that entails also knowing that in point of fact they can often be quite irrational by exploiting various human irrationalities, such as using past experience when we really shouldn't. Big fund managers aren't even remotely immune to this. This strategy of selling such a small portion of the company on the market feels like a way of exploiting the fact that "everybody knows" these big tech stocks "always" explode and exploiting the demand that is higher than it should be, while in fact selling hardly anything of value at all. Arbitraging the belief that tech stocks can't help but pull a Google, basically.

I'm pretty sure when a company does additional "public offerings" they typically issue new shares and dilute their existing shares rather than sell them. It's just easier, and more smoke-and-mirrors, just the way Wall Street likes it.

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