IPO access is the financial equivalent of paying extra to board a plane first. You're still going to the same place. You're still sitting in a metal tube. But some broker convinced you the experience differs if you get there six minutes earlier.
Brokerages market IPO access like it's a privilege. They imply you're getting in on the ground floor. Except the ground floor is where retail traders go to get stepped on by institutional investors who actually received allocation at the offering price. You're not getting Morgan Stanley's IPO shares. You're getting the leftovers after every hedge fund and mutual fund passed.
The pitch goes like this: buy shares before the company goes public. Except you can't. Not really. Pre-IPO access means you might get a chance to submit an indication of interest that will probably be ignored while the underwriters laugh at your $500 order. Real IPO allocation goes to clients who bring the investment bank actual revenue. That's not you. That's never been you.
Once trading begins anyone can buy shares. Congratulations. You've discovered the core function of a stock exchange. Brokers act like this is some kind of barrier to entry. It's not. The barrier is that you're buying a company at a valuation set by the same people who brought you WeWork at $47 billion.
The best brokers for IPO access are the ones that don't pretend IPO access matters. Every share you buy on day one costs more than what institutional investors paid. You're paying retail. They paid wholesale. This is not a complicated concept. You're buying a car from the dealership while they bought it at the auction.
IPO stocks are just stocks that used to be private. That's it. The company didn't transform when it started trading publicly. It's the same business with the same problems except now you get to own a piece of those problems at a 40% markup.
Photo by Adam Śmigielski on Unsplash
Leave a Comment