"The auction market prevailing in the stock market will offer up extraordinary bargains. Sometimes somebody will sell 0.5% or 1% of a company at a price that maybe a quarter of what it's worth, whereas in negotiated deals, you don't get that.
An IPO situation more closely approximates a negotiated deal. The seller decides when to come to market in most cases, and they don't pick a time necessarily that's good for you.
It's way less likely that in scanning a list of 100 IPOs that you're going to come up with something cheaper than scanning 100 companies that are already trading in the auction market.
Sometimes, there will be IPOs in terrible markets and they may come very cheap, but by and large, that is not when IPOs come. They come when the seller thinks that the market is ready for them.
I can't recall any time in the last 30 years at least that we've bought a new issue [IPO].
The idea that somebody is bringing something to market today, a seller who has a choice of when to come to market, and that that security where there's going to be a lot of hoopla connected with it is going to be these single cheapest thing to buy out of thousands and thousands and thousands of businesses in the world is nonsense.
You know it can't be the most attractive thing, but people get excited about what's coming and all that sort of thing.
But I will guarantee you that if you have thousands of opportunities among stocks all over the world and most of them are not being promoted or being sold with special commissions
in them or something else and then some other security is coming to market that day when the seller picks the time to bring it, as opposed to just this auction market operating otherwise--it just doesn't make any sense to me to spend five seconds thinking about new issues, so we don't think about them."
Great content!
Makes me long for the late 90's / very early 2000's when $1000 put into an IPO would be $3000 by the end of the week.
RIP Good Times.
Information asymmetry. That explains a lot.
Buffett on why he never buys IPOs: https://www.youtube.com/watch?v=_-Z65oWMTD4
"The auction market prevailing in the stock market will offer up extraordinary bargains. Sometimes somebody will sell 0.5% or 1% of a company at a price that maybe a quarter of what it's worth, whereas in negotiated deals, you don't get that.
An IPO situation more closely approximates a negotiated deal. The seller decides when to come to market in most cases, and they don't pick a time necessarily that's good for you.
It's way less likely that in scanning a list of 100 IPOs that you're going to come up with something cheaper than scanning 100 companies that are already trading in the auction market.
Sometimes, there will be IPOs in terrible markets and they may come very cheap, but by and large, that is not when IPOs come. They come when the seller thinks that the market is ready for them.
I can't recall any time in the last 30 years at least that we've bought a new issue [IPO].
The idea that somebody is bringing something to market today, a seller who has a choice of when to come to market, and that that security where there's going to be a lot of hoopla connected with it is going to be these single cheapest thing to buy out of thousands and thousands and thousands of businesses in the world is nonsense.
You know it can't be the most attractive thing, but people get excited about what's coming and all that sort of thing.
But I will guarantee you that if you have thousands of opportunities among stocks all over the world and most of them are not being promoted or being sold with special commissions
in them or something else and then some other security is coming to market that day when the seller picks the time to bring it, as opposed to just this auction market operating otherwise--it just doesn't make any sense to me to spend five seconds thinking about new issues, so we don't think about them."
Insightful! Why do you think IPOs don't perform well?
The small float and hype don’t help