# Using full-service brokers to get better access to IPO allocations



## TPI (22 November 2014)

Hi there,
I have been reading Hotcopper and a few people there have got large allocations for some IPOs through their full-service brokers.
Anyone else using such brokers for this purpose?
I guess brokerage rates would be higher, but I have read that some people are paying a flat annual fee of a few thousand dollars for unlimited transactions.
I don't do that many transactions myself so wouldn't get the value out if it in this way, but if it gave me a better chance of getting into a good IPO with a meaningful amount invested I might consider it.
Thanks.


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## luutzu (22 November 2014)

TPI said:


> Hi there,
> I have been reading Hotcopper and a few people there have got large allocations for some IPOs through their full-service brokers.
> Anyone else using such brokers for this purpose?
> I guess brokerage rates would be higher, but I have read that some people are paying a flat annual fee of a few thousand dollars for unlimited transactions.
> ...




Why would you want to buy IPOs? Getting in on the ground floor?


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## pixel (22 November 2014)

luutzu said:


> Why would you want to buy IPOs? Getting in on the ground floor?




+1
The few really *good *IPOs are picked up by "mates"; the ones that are offered to the broad public can be picked up at a discount a short while after listing - if you really want to.

That aside, I have learned to be very selective in believing what I read on HC - if I go there at all.


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## burglar (22 November 2014)

luutzu said:


> Why would you want to buy IPOs? Getting in on the ground floor?




Ground floor is nice until you realise you're heading for the basement.
If you are lucky, the elevator does go up.
No-one sends you a telegram when it reaches the top floor.


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## VSntchr (22 November 2014)

pixel said:


> +1
> The few really *good *IPOs are picked up by "mates"; the ones that are offered to the broad public can be picked up at a discount a short while after listing - if you really want to.
> 
> That aside, I have learned to be very selective in believing what I read on HC - if I go there at all.




Hey Pixel (or any others who may know) - do you have any idea how big you need to swing before brokers will start valuing your business and actually calling you for solid IPO offers or other investment ideas?

We often hear that quality issues and opportunities are limited to the "best clients", so what does it take to become one of these?


To become a soph investor I believe you are required to have net assets of $2.5m+ or the investment in question is for $500k+..so perhaps these figures are approximate?


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## TPI (22 November 2014)

luutzu said:


> Why would you want to buy IPOs? Getting in on the ground floor?




Yeah getting in early and at close to the ground floor, but only for very selective IPOs.


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## TPI (22 November 2014)

VSntchr said:


> Hey Pixel (or any others who may know) - do you have any idea how big you need to swing before brokers will start valuing your business and actually calling you for solid IPO offers or other investment ideas?
> 
> We often hear that quality issues and opportunities are limited to the "best clients", so what does it take to become one of these?
> 
> ...




This is what I am interested to find out too...

"Sophisticated investor" status according to ASIC is net assets of >$2.5M OR gross income of >$250k pa in the previous 2 years.

I think separate to this is "wholesale investor" status where the investment is for >$500k.

And also "professional investor" status where you have >$10M of gross assets, I think...


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## luutzu (22 November 2014)

TPI said:


> This is what I am interested to find out too...
> 
> "Sophisticated investor" status according to ASIC is net assets of >$2.5M OR gross income of >$250k pa in the previous 2 years.
> 
> ...




You have rich idiots as well as poor idiots, then there's rich idiots just smart enough to convince richer idiots to give them money to play with.   The size of one's bank account doesn't equate to sophistication, even if you put Clark Kent glasses on it.

With IPOs, I agree with Pixel and Burglar... it's best to wait until it's floated and the sizzles settles. IPOs really is just a sales job, a lot of hype and marketing, and offloaded at times where there's a lot of optimism for the stock. It's like dressing up for your first date, taking the girl of your dream to the best restaurant you've been saving a few months for... the girls that like that look and that lifestyle tend to dump you after a second date at McDonalds. 

If the company is good, let it prove itself over a couple more years. While you might have missed the boat then, it's only fair that you pay a higher price for a good business that had since earn a bit more than at IPO. If the price then is still within your value range, I think it's better to buy something you know better then than what jump in based on what your broker tell his favourite clients, or what management reckon in their pro-forma statements. 

But if you know the business well and see through all these hypes and costs of the float... I could only be saying that because I don't have friends in high place


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## Julia (22 November 2014)

luutzu said:


> You have rich idiots as well as poor idiots, then there's rich idiots just smart enough to convince richer idiots to give them money to play with.



Most people who have 2.5M to invest are unlikely to be idiots.


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## luutzu (22 November 2014)

Julia said:


> Most people who have 2.5M to invest are unlikely to be idiots.




You'd be surprised.


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## Julia (22 November 2014)

Give me some examples, then. 

I've been around people with these sorts of amounts to invest for decades.  They all absolutely know what they are doing.  How do you suggest people acquire such an asset level if they are stupid?


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## luutzu (23 November 2014)

Julia said:


> Give me some examples, then.
> 
> I've been around people with these sorts of amounts to invest for decades.  They all absolutely know what they are doing.  How do you suggest people acquire such an asset level if they are stupid?




I didn't say people are either smart or stupid based on how much they have or how much they managed. 

Was saying smart or dumb, in reference to whether an investor is "sophisticated" or not, has little to do with the size of their account - you got to know how it got there, can't just assume they all start at zero.

If the people you know build their wealth from investing, then of course they're capable and sophisticated... but what if I just started and my uncle is rich and he just thought I ought to start with $3M of his money.

That's the normal investors... now the professionals... a lot of fund managers look pretty bad after the GFC I think. A couple or more banks with billions actually go broke.. .then there's the geniuses and Nobel winners at Long Term Capital Mgt. A person can be sophisticated, but could still be idiotic... and putting the world's financial market on the edge of collapse should probably earn them that label - no matter how big the size of their account or the sophistication of their trading systems.


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## So_Cynical (23 November 2014)

Julia said:


> Give me some examples, then.
> 
> I've been around people with these sorts of amounts to invest for decades.  They all absolutely know what they are doing.  *How do you suggest people acquire such an asset level if they are stupid?*




I have met quite a few couples in their 50's that basically did as explained below.

1: Stay married.
2: Buy a House in the inner suburbs of Sydney, use equity after 10 years to buy another, negative gear.
3: Pay off houses.
4: Put money into super

You and the misses now have a net worth of over 2.5 million.....lots of perfectly stupid people have done this.


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## Julia (23 November 2014)

So_Cynical said:


> I have met quite a few couples in their 50's that basically did as explained below.
> 
> 1: Stay married.
> 2: Buy a House in the inner suburbs of Sydney, use equity after 10 years to buy another, negative gear.
> ...




Absolutely nothing stupid in that strategy so you are not at all demonstrating how someone who was an idiot can achieve such an asset level.

The 2.5M is generally recognised to be outside the value of the family home.

The same could be done using the right strategies in the share market.  But not by stupid people.

luutzu:  we were discussing individuals, not large organisations.

Perhaps let the thread get back on track.


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## skyQuake (23 November 2014)

VSntchr said:


> Hey Pixel (or any others who may know) - do you have any idea how big you need to swing before brokers will start valuing your business and actually calling you for solid IPO offers or other investment ideas?
> 
> We often hear that quality issues and opportunities are limited to the "best clients", so what does it take to become one of these?
> 
> ...




Unfortunately, the answer is 'it depends.'

You'll need to turn over a lot more volume at a big heavyweight like UBS than say a small local one like BBY or Taylors or even CMC. 

The issue is 99% of the time it'll be very difficult to gauge an IPO. You're not only valuing the stock itself but also the what other (bigger) players will think of it and money flows.

As a rough rule of thumb, Good Allocation% = ****ty moves% and vice versa.

You'll also get to participate in Big crossings when a substantial holder wants out, as well as various placements


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## luutzu (23 November 2014)

Julia said:


> Absolutely nothing stupid in that strategy so you are not at all demonstrating how someone who was an idiot can achieve such an asset level.
> 
> The 2.5M is generally recognised to be outside the value of the family home.
> 
> ...




SC, I'm sure, didn't mean stupid as in dumb and dumberer... but in reference to being "sophisticated" investor or completely dumb to the stock market.

I was only having fun with ASIC's definition... I think it's true what I said anyway, but don't take it seriously.


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## DeepState (23 November 2014)

skyQuake said:


> Unfortunately, the answer is 'it depends.'



+1

FYI.  IPOs make money on average.  They can be expected to do so as part of the delicate way in which the relationship between underwriters, capital providers (to the underwriter and the IPO company) and the listing company with their advisers works.  

Here are the results for ASX listings for proceeds >=$50m over the five year period to Friday.  The average profit from list price to close at the expiration of 1 month is 2.1%.  A first day flip would do better.  This figure is statistically significant and, I would argue, financially significant.




Notice the distribution is fairly symmetric.  The returns do not arise from a small number of stand-outs and a larger number of disappointments.  The three most profitable were Japara, OzForex and Veda.  Make of these what you will in terms of the club-like nature of their floats.

The graph is the overall market average.  It will not be the available experience of every segment of the market.  Generally, the bigger accounts will be enriched at a greater rate than the smaller or otherwise less favoured accounts whose IPO experience will not be as favourable as portrayed above in otherwise similar situations.


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## burglar (23 November 2014)

So_Cynical said:


> I have met quite a few couples in their 50's that basically did as explained below.
> 
> 1: Stay married.
> 2: Buy a House in the inner suburbs of Sydney, use equity after 10 years to buy another, negative gear.
> ...




A few I know have done this:

1: Stayed married.
2: One earned income.
3: One stayed home looking after three children.
4: Paid off one house, one car, one cat!

Doesn't mean they are perfectly stupid, but then again ... mmm!


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## luutzu (24 November 2014)

DeepState said:


> +1
> 
> FYI.  IPOs make money on average.  They can be expected to do so as part of the delicate way in which the relationship between underwriters, capital providers (to the underwriter and the IPO company) and the listing company with their advisers works.
> 
> ...




Put titles on the axes might help.

The problem I find with your data and line of reasoning is they tend to be impractical, useless in another word.

Don't mean to offend you, I understand that when you handle large asset pool in the hundreds of million or enough to enable relatively wide, and still meaningful and cost-effective, diversification... the data about "in general, most would do well"... that might be useful.

To most normal investors, it's quite useless.

It's like those subscription newsletter boasting about how if all their recommendations were executed over the past 3 or 5 years, subscribers would earn x%p.a.  And when you count how many recommendation they've made, it's in the hundreds. I mean, it's not a lie, but it's kinda useless and misleading.




DeepState said:


> FYI.  IPOs make money on average.  They can be expected to do so as part of the delicate way in which the relationship between underwriters, capital providers (to the underwriter and the IPO company) and the listing company with their advisers works.




What you do mean? That original owners would want to leave something on the table, the advisors and bankers would do the same... that they want to price it below fair value, leave some for the other guys to establish/strengthen relationships? That and also some for the new shareholders because over the long term, bankers and such don't want to float bad stocks and scare away investors?

You must have and know many very good people.

The only situation I could imagine that happening is, as Peter Lynch pointed out, when the Gov't float the assets - they would priced it lower etc. to make voters happier... doing favours to rich and powerful friends, and a few mum and dad investors. That I can see. Getting re-elected is a good incentive... though if the price goes up too high, questions might be asked as to why the gov't sell something so valuable so cheaply.


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## burglar (24 November 2014)

luutzu said:


> Put titles on the axes might help.
> 
> The problem I find with your data and line of reasoning is they tend to be impractical, useless in another word ...




@luutzu,

Are you so jealous of these people (DeepState et al) 
who can afford a subscription to data providers; 
that you have to rubbish them, the firms they work for, 
and the data providers too?



You should get a smack for this post!


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## luutzu (24 November 2014)

burglar said:


> @luutzu,
> 
> Are you so jealous of these people (DeepState et al)
> who can afford a subscription to data providers;
> ...




Just say it like how I see it, sorry if it's offensive.

I did say, and was sincere in saying it, that it might be useful in RY's line of work where you can invest in a large number of opportunities and widely diversify... that makes sense and might be useful. 

I don't think it's wrong to say it's somewhat useless to a bloke with $100k to invest though. I mean, just like a subscription service that make some 100 recommendations a year, then it tells you that over the past 3 years, if all its recommendations were followed, it'd earn 12% p.a. 

Can an average guy with say $200k really diversify enough to get an "average" of the recommendations? 


Why would I be jealous? I also have access to similar databases too... and I got to it for free  Not that I use them as they're intended but yea, I can get to them.


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## DeepState (24 November 2014)

Well, too much red cordial before bedtime?



luutzu said:


> Put titles on the axes might help.




Have you actually put up any originally drawn charts in the hundreds of posts and pieces of advice you have put forward?  Could you point out an example or ten that I could learn this practice of adding titles from?




luutzu said:


> The problem I find with your data and line of reasoning is they tend to be impractical, useless in another word.




My stuff is useless for you?  Excellent.




luutzu said:


> Don't mean to offend you, I understand that when you handle large asset pool in the hundreds of million or enough to enable relatively wide, and still meaningful and cost-effective, diversification... the data about "in general, most would do well"... that might be useful.
> 
> To most normal investors, it's quite useless.




No offense taken.  The people I worked with are WORTH "in the hundreds of million (sic)".  We don't take offense.  We don't really care that much.  It was a long time ago when I started with that type of experimental money.  No, Luu, I managed many billions.  You'd need to use more than one hand because you'd run out of fingers.  Oh, I was involved in some IPOs here and there.  We didn't just fill in a prospectus form either.  There's quite a bit to the equity capital markets process.  




luutzu said:


> I also have access to similar databases too... and I got to it for free  Not that I use them as they're intended but yea, I can get to them.




No data? Or heaps of data, but no/little idea how to use it?  Basically saying that you do not use data in your prognostications and advice?  That would be the same as saying "making stuff up without basis?"  If you were a financial planner, let alone a self-appointed adviser to all and sundry, you would require a basis for your advice.  Conveniently, this standard is not required here in general chit chat. Phew. Please continue.

By the way, how do you know what database I have when you only asked about this recently...without response.  Just making it up again?  If you have my stuff, that would be over 2.2million economic series and so much data for bottom up analysis that it you could stick your head up it far enough to find darkness.  Actually, maybe you do have it.  I believe you.




luutzu said:


> What you do mean? That original owners would want to leave something on the table, the advisors and bankers would do the same... that they want to price it below fair value, leave some for the other guys to establish/strengthen relationships? That and also some for the new shareholders because over the long term, bankers and such don't want to float bad stocks and scare away investors?




You write as if this were ridiculous.  That's sort of it, as it turns out.  But all is not equal.  It's a conspiracy to enrich the wealthy at the expense of you.  Really.  Those with some skill at this should participate and some who have solid first line full brokerage arrangements in place should almost do so as a matter of course.




luutzu said:


> You must have and know many very good people.




What was I doing this morning...  Well, I flew in to our nation's capital where I met with some hitters.  They invited me, by the way.  We discussed what to do with a couple of yards in ring-fenced assets under Federal oversight.  I sat next to a guy who was a former RBA board member who has analysed stuff I haven't even heard of.  Others in the room advise entire nations (yes, plural) on economic and monetary policy.

Do you want to know what tomorrow brings? 

How was your day?




luutzu said:


> The only situation I could imagine that happening is, as Peter Lynch pointed out, when the Gov't float the assets - they would priced it lower etc. to make voters happier... doing favours to rich and powerful friends, and a few mum and dad investors. That I can see. Getting re-elected is a good incentive... though if the price goes up too high, questions might be asked as to why the gov't sell something so valuable so cheaply.




You lack sufficient imagination in some areas and have too much of it in many others.




luutzu said:


> Can an average guy with say $200k really diversify enough to get an "average" of the recommendations?




Achieving average is not the point.  Betting with edge is.  

Not betting when someone hands you a definitely loaded coin in your favour is.....stupid/idiotic....unless you have no tolerance for risk whatsoever...or no idea.   A coin with a 55% chance of hitting heads on a throw will not produce 5.5 heads on 10 rolls.  Each roll gave you a 5% statistical edge.  That is investing.  Finding edge, exploiting edge.  It is as relevant to a person tossing 10x $1 coins in a playground to buy marbles as it is to Soros to people in-between thinking about whether to put up some of their money into an IPO.  Just look at, gee, Medibank Private.  Should a person with $20k total assets not have made a bid?  Ask around...check the data. ASk the 'normal' investor what the right thing to have done was. Let me know ok?

There is an edge to IPO participation on average.  There is favouring of various degrees that goes on for "mates".  Still, you'd need to mount a strong argument to overcome the data that I showed and which is readily corroborated by research undertaken around the world (please feel free to prove otherwise with your data, by the way).

Undertaking a relationship with a full service broker for the sole reason of getting better access to IPOs is unlikely to be net beneficial in isolation.  The costs would exceed the IPO participation benefits for most arrangements. You would need to value other services to tilt the value proposition.  As to the various break-evens, "it depends".


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## luutzu (24 November 2014)

DeepState said:


> Well, too much red cordial before bedtime?
> 
> Have you actually put up any originally drawn charts in the hundreds of posts and pieces of advice you have put forward?  Could you point out an example or ten that I could learn this practice of adding titles from?
> 
> ...




You've probably gone sky diving right?

Say that before your plane takes off and you're in the hangar full of parachutes. The operator tells you to pick one, saying... most of them, around 90% ,are good. The other 10% are defective. But overall, the odds are they'll work just fine.

Ey man, which parachute is defective? Any red cross on them to mark it? 
No, it's random, but like I said, chances are you'll survive - 90%. The odds are in your favour 9 to 1 my friend.

Are you going to put on any parachute based on that info? Are you going to risk it? You'll probably call in the regulators right?

Yet somehow a similar opinion based on historical averages makes perfect sense and investors should jump in.


I even give it to you that given your big status and years of playing with big boys and mucking around big numbers, that you're used to thinking stupid... but you're offended so OK. 

Seriously though, ever consider you might have lost perspective thinking "big picture"? 
Say a general was planning the D-Day invasion... his war planners said that given Germany's defenses, its garrison and anti-air measures, given wind speed this and that... chances are 80% of the paratroopers will make it while 20% might not reach the ground alive.

A big picture supreme commander might see that as acceptable, even a good odd... That would make sense given the circumstances and the objective. BUt that same general at that hangar would demand 100% chance of him and anyone else's landing safely.

-----

With IPOs... I don't believe in conspiracies or the rich having it in for the poor or class warfare... it's just people doing things that serves their interests. I think you're old enough to know that serving one's interests rarely mean serving someone else's interests - in reality.

While you're rubbing shoulders with the big boys, advise them to sell more stuff to people who already own it. I love to go buy things I already own, love it. 

Hey Australian battlers, you mum and dad investors, you know that company that you and me and all of us own? How would you like to buy it? 

------

How many stock databases are in the world do you think? Thomson|Reuters, Bloomberg, S&P? The rest simply get certain pieces from them and represents it in pretty charts. Or I don't know anything?

The reason I ask you was because I was curious that since you put so much faith in the database's consensus forecast why you don't just send them your money to manage. Why pay for for the subscription that tells you what to do; might as well cut out the middle man (yourself) and just let the guys that tell people what to do do it.

2.2 million data series ey? No wonder you guys can't see straight.


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## DeepState (30 November 2014)

luutzu said:


> You've probably gone sky diving right?
> 
> Say that before your plane takes off and you're in the hangar full of parachutes. The operator tells you to pick one, saying... most of them, around 90% ,are good. The other 10% are defective. But overall, the odds are they'll work just fine.
> 
> ...



Yep.

You did at least some finance.  Please recall the concept of utility.  The state of death is rather a lot worse than a state of losing 5% of your assets in a catastrophic IPO allocation and, say, 30% decline in value at pop.  It would be appalling risk management to be in this situation.  For your example of an average $200k investor, that's $10k.  It's not comparable to death.  The state you are in at that time is not permanently fixed at "stuffed".  You can diversify (through time as well, in an IPO strategy).  You can't diversify death. Death is really not an appropriate analogy for a bad IPO outcome. 




luutzu said:


> I even give it to you that given your big status and years of playing with big boys and mucking around big numbers, that you're used to thinking stupid... but you're offended so OK.
> 
> Seriously though, ever consider you might have lost perspective thinking "big picture"?
> Say a general was planning the D-Day invasion... his war planners said that given Germany's defenses, its garrison and anti-air measures, given wind speed this and that... chances are 80% of the paratroopers will make it while 20% might not reach the ground alive.
> ...




It was awesome. Many of my ex colleagues are still out there defying gravity. We weren't stupid.  I'm pretty comfortable on that call.  You may disagree, without truly having an insight into what was going on.  I don't particularly feel the need to defend the actions of all people in the industry any more than you should have to defend the actions of criminal elements of the first generation Vietnamese.  You don't have to. I don't either.

As for your military example, as before, death is not diversifiable for a single person.  If you can't take risk, you can't move.  In a military situation that would drive someone to consider such odds and such a desparate mission, actually, if you don't move, you die. It is the least worst.  Doesn't matter, the analogy of the general sitting in the hanger is not appropriate.  You can bet on 100 IPOs in your investing career.  Some will stink.  Some will do well.  On average, you can EXPECT to be ahead.  That's it.  Every investment you make is like this.  Why are IPOs so weird? Every one produces an outcome just as any stock purchased will. No single one will kill you unless you lever up and apply for a stack of your net worth in a single one. It's just another trigger with an edge to buy a stock.  It is one of the most reliable which is why the whole mechanics of equity capital markets is so important to wholesale investors.  Retail does get ripped off to some extent, but it works out that the smaller end of retail, say around $20-50k is actually in a wonderful sweetspot.  They normally get minimum allocation and don't run the risk of getting stuck with a monster amount of overbid if the IPO goes down so long as they get the bid roughly similar (or via other appropriate weighting) each time.  The banks are not out to totally screw the retail market.  They would get a good benefit once, maybe, and then will be locked out of the market for a long time and hurt their ability to get underwriting deals and also bear more risk if they do win one.  The game does not work that way.  If you want, it is a repeater game.  
-----



luutzu said:


> With IPOs... I don't believe in conspiracies or the rich having it in for the poor or class warfare... it's just people doing things that serves their interests. I think you're old enough to know that serving one's interests rarely mean serving someone else's interests - in reality.
> 
> While you're rubbing shoulders with the big boys, advise them to sell more stuff to people who already own it. I love to go buy things I already own, love it.
> 
> Hey Australian battlers, you mum and dad investors, you know that company that you and me and all of us own? How would you like to buy it?



------

What?



luutzu said:


> How many stock databases are in the world do you think? Thomson|Reuters, Bloomberg, S&P? The rest simply get certain pieces from them and represents it in pretty charts. Or I don't know anything?
> 
> The reason I ask you was because I was curious that since you put so much faith in the database's consensus forecast why you don't just send them your money to manage. Why pay for for the subscription that tells you what to do; might as well cut out the middle man (yourself) and just let the guys that tell people what to do do it.
> 
> 2.2 million data series ey? No wonder you guys can't see straight.





You know something, but possibly not everything.  Generally, scrapes from these databases is at the summary level.  It may not include securities which have been discontinued which is important if you want to avoid survivorship bias in backtesting.  It may not go back terribly far.  It may not report segments. Almost certainly does not provide details of the refinancing and debt structure which were absolutely vital through the GFC. Does not allow for adjustments or tell you what they are.  Does not tell you where the number actually came from in the accounts....and so on.   They are incomplete.  Depending on your purpose, say, valuation, they are very incomplete because you do not know what is actually going on behind headlines.  You can use it, but you will be at a disadvantage in a competitive situation as markets are set to be.  Data is expensive.  They don't give away the good stuff for free.  If you want to compile this by hand and reclassify line by line, you can do it.  Unless you value your time at zero, that's not free either.

As to consensus, it comes from insto brokers.  They produce research and do not manage money.  This is different to private client advisors.  Consensus is useful to know what is being priced into the market and why.  The consensus figures hardly have any impact on long term valuation.  Short term consensus movements have a material impact of share price movements.  For these reasons and many more besides, fund managers exist and so do traders.  Brokers would make very poor money managers and are heavily conflicted.  

As to the data...perhaps we can actually see and our actions seem like we aren't going straight.  However, the world doesn't move in straight lines so we curve out arcs.  This is investing.  Would you rather play with a blindfold?  I wouldn't.  Data is how the world is brought into a framework for decision making.  No-one uses 2.2 million economic series to make a stock pick.  But to have what data you need for a situation is handy.  A stack of data that is truly required in any situation is not even in these databases.  That's how much is out there and valuable.


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## TPI (30 November 2014)

Thanks for the replies, I posed this question to someone on HC who got good broker firm allocations and they said that they only used Commsec online broking accounts for over 15 years but incurred a lot of brokerage with a lot of trading (and/or large value trades I guess), not sure of course how much investable assets they had.


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## TPI (30 November 2014)

DeepState said:


> You know something, but possibly not everything.  Generally, scrapes from these databases is at the summary level.  It may not include securities which have been discontinued which is important if you want to avoid survivorship bias in backtesting.  It may not go back terribly far.  It may not report segments. Almost certainly does not provide details of the refinancing and debt structure which were absolutely vital through the GFC. Does not allow for adjustments or tell you what they are.  Does not tell you where the number actually came from in the accounts....and so on.   They are incomplete.  Depending on your purpose, say, valuation, they are very incomplete because you do not know what is actually going on behind headlines.  You can use it, but you will be at a disadvantage in a competitive situation as markets are set to be.  Data is expensive.  They don't give away the good stuff for free.  If you want to compile this by hand and reclassify line by line, you can do it.  Unless you value your time at zero, that's not free either.
> 
> ...
> 
> As to the data...perhaps we can actually see and our actions seem like we aren't going straight.  However, the world doesn't move in straight lines so we curve out arcs.  This is investing.  Would you rather play with a blindfold?  I wouldn't.  Data is how the world is brought into a framework for decision making.  No-one uses 2.2 million economic series to make a stock pick.  But to have what data you need for a situation is handy.  A stack of data that is truly required in any situation is not even in these databases.  That's how much is out there and valuable.




Hi RY, do your databases calculate ROIC for all stocks?


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## DeepState (30 November 2014)

TPI said:


> Hi RY, do your databases calculate ROIC for all stocks?




I just use FactSet and an associated tool which helps a data manipulation engine grab information directly from their servers for analysis. Yes, FactSet does calculate this in its pre-canned reports amongst other common ratios.  As you can extract all the underlying bits and pieces, you can also calculate whatever ratio you want across a universe etc.  FactSet is just one of the data aggregators out there with Bloomberg etc. It probably has around 30% of the market for this type of service.  It has less market share than Bloomberg, which tends to be more bond centric.


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## skyQuake (30 November 2014)

DeepState said:


> Death is really not an appropriate analogy for a bad IPO outcome.




Ha! Would love to see that in a prospectus...

Potential Gain: 10%-15%
Potential Loss: Death

---------------------------------------------------------------
I recently had a trial with Factset for specific substantial holders data. They're a bit worse than Bloomberg in that regard but all other data = outstanding


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## TPI (30 November 2014)

DeepState said:


> I just use FactSet and an associated tool which helps a data manipulation engine grab information directly from their servers for analysis. Yes, FactSet does calculate this in its pre-canned reports amongst other common ratios.  As you can extract all the underlying bits and pieces, you can also calculate whatever ratio you want across a universe etc.  FactSet is just one of the data aggregators out there with Bloomberg etc. It probably has around 30% of the market for this type of service.  It has less market share than Bloomberg, which tends to be more bond centric.




Thanks RY, how much does it cost you for FactSet? Is there any way for a retail investor to get access to this at low or no cost?


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## DeepState (30 November 2014)

TPI said:


> Thanks RY, how much does it cost you for FactSet? Is there any way for a retail investor to get access to this at low or no cost?




Basic FactSet Workstation standard costs are in mid AUD 20k region per annum (contract confidentiality prevents an exact figure). This is in the vicinity of Bloomberg.  It provides bulk information of the type we have largely been discussing. That figure is before additional custom databases that you may wish to acquire.  These include things like the weights of the FTSE index etc.  These are seriously expensive for what they are. We're talking ~30k for that. And so on. I then get other stuff worth $7-10k to use it more intensively than looking through screens one at a time. 

This is a subscription service and I do not know of a portal to it which circumvents the fees. I would have done it otherwise... It is mostly marketed to institutions.


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## TPI (1 December 2014)

DeepState said:


> Basic FactSet Workstation standard costs are in mid AUD 20k region per annum (contract confidentiality prevents an exact figure). This is in the vicinity of Bloomberg.  It provides bulk information of the type we have largely been discussing. That figure is before additional custom databases that you may wish to acquire.  These include things like the weights of the FTSE index etc.  These are seriously expensive for what they are. We're talking ~30k for that. And so on. I then get other stuff worth $7-10k to use it more intensively than looking through screens one at a time.
> 
> This is a subscription service and I do not know of a portal to it which circumvents the fees. I would have done it otherwise... It is mostly marketed to institutions.




Ok thanks, bit too pricey for me!


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## luutzu (2 December 2014)

DeepState said:


> Basic FactSet Workstation standard costs are in mid AUD 20k region per annum (contract confidentiality prevents an exact figure). This is in the vicinity of Bloomberg.  It provides bulk information of the type we have largely been discussing. That figure is before additional custom databases that you may wish to acquire.  These include things like the weights of the FTSE index etc.  These are seriously expensive for what they are. We're talking ~30k for that. And so on. I then get other stuff worth $7-10k to use it more intensively than looking through screens one at a time.
> 
> This is a subscription service and I do not know of a portal to it which circumvents the fees. I would have done it otherwise... It is mostly marketed to institutions.





Say hello to my database 




I did some searches earlier in the year and there's this guy who wrote instructions on setting up your own "Bloomberg" terminal: Set up four monitors or so, have Google Finance, Reuter News site and stuff like that. It's quite funny but might not be that far from the truth.

In all seriousness, I'm sure these systems you have are essential to your work... they certainly are very impressive. Just for me personally, I wouldn't know what I'd do with them.

Will try to reply later.


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## luutzu (3 December 2014)

DeepState said:


> Yep.
> 
> You did at least some finance.  Please recall the concept of utility.  The state of death is rather a lot worse than a state of losing 5% of your assets in a catastrophic IPO allocation and, say, 30% decline in value at pop.  It would be appalling risk management to be in this situation.  For your example of an average $200k investor, that's $10k.  It's not comparable to death.  The state you are in at that time is not permanently fixed at "stuffed".  You can diversify (through time as well, in an IPO strategy).  You can't diversify death. Death is really not an appropriate analogy for a bad IPO outcome.




Hi general RY,

So my $10K walks into the hangar asking for a parachute and... 

We were at lunch and a finance manager walk by; we made small talk... asking how the audit was going he said it's going great except for one item they couldn't reconcile... but it's a small thing, only $25 million, so no problem.

He and us had a good laugh on hearing $25 million as a small thing... so I know where you're coming from dealing with big numbers and averages, just I don't find them suitable for most people. Actually, I don't find it suitable for anyone wanting to make informed, rather than speculative, decision.




DeepState said:


> It was awesome. Many of my ex colleagues are still out there defying gravity. We weren't stupid.  I'm pretty comfortable on that call.  You may disagree, without truly having an insight into what was going on.  I don't particularly feel the need to defend the actions of all people in the industry any more than you should have to defend the actions of criminal elements of the first generation Vietnamese.  You don't have to. I don't either.




??





DeepState said:


> As for your military example, as before, death is not diversifiable for a single person.  If you can't take risk, you can't move.  In a military situation that would drive someone to consider such odds and such a desparate mission, actually, if you don't move, you die. It is the least worst.  Doesn't matter, the analogy of the general sitting in the hanger is not appropriate.  You can bet on 100 IPOs in your investing career.  Some will stink.  Some will do well.  On average, you can EXPECT to be ahead.  That's it.  Every investment you make is like this.  Why are IPOs so weird? Every one produces an outcome just as any stock purchased will. No single one will kill you unless you lever up and apply for a stack of your net worth in a single one. It's just another trigger with an edge to buy a stock.  It is one of the most reliable which is why the whole mechanics of equity capital markets is so important to wholesale investors.  Retail does get ripped off to some extent, but it works out that the smaller end of retail, say around $20-50k is actually in a wonderful sweetspot.  They normally get minimum allocation and don't run the risk of getting stuck with a monster amount of overbid if the IPO goes down so long as they get the bid roughly similar (or via other appropriate weighting) each time.  The banks are not out to totally screw the retail market.  They would get a good benefit once, maybe, and then will be locked out of the market for a long time and hurt their ability to get underwriting deals and also bear more risk if they do win one.  The game does not work that way.  If you want, it is a repeater game.
> -----




Maybe I just have little money, maybe I'm just old school, but I prefer to not lose money. Investing already has its own risks - risks of eroding economics, competitive position; risks I might be wrong or reports were falsified etc. etc. To add all that risk to a risk that the one or two IPOs I buy might be the one or two that crash and burn and I won't know why since I didn't look or know enough but simply based purchase decision on averages of IPO performance.




DeepState said:


> ------
> What?




Was referring to the industry's and politicians' spin about privatising gov't corporations/assets, or bringing to public private companies... how they, and you apparently, say it's often good for the retail investors. Anyway, not important.




DeepState said:


> You know something, but possibly not everything.  Generally, scrapes from these databases is at the summary level.  It may not include securities which have been discontinued which is important if you want to avoid survivorship bias in backtesting.  It may not go back terribly far.  It may not report segments. Almost certainly does not provide details of the refinancing and debt structure which were absolutely vital through the GFC. Does not allow for adjustments or tell you what they are.  Does not tell you where the number actually came from in the accounts....and so on.   They are incomplete.  Depending on your purpose, say, valuation, they are very incomplete because you do not know what is actually going on behind headlines.  You can use it, but you will be at a disadvantage in a competitive situation as markets are set to be.  Data is expensive.  They don't give away the good stuff for free.  If you want to compile this by hand and reclassify line by line, you can do it.  Unless you value your time at zero, that's not free either.




Agree.

I got access to MorningStar Premium (Free from a uni library's account) and while they have more info/data than the free stuff from the likes of Commsec, they're not that much more useful.





DeepState said:


> As to consensus, it comes from insto brokers.  They produce research and do not manage money.  This is different to private client advisors.  Consensus is useful to know what is being priced into the market and why.  The consensus figures hardly have any impact on long term valuation.  Short term consensus movements have a material impact of share price movements.  For these reasons and many more besides, fund managers exist and so do traders.  Brokers would make very poor money managers and are heavily conflicted.




I'm pretty sure selected fund managers also offer their estimates to be included in these consensus. Saw Wilson HTM saying they're the selected few contributing to StarGazer or something.

The point was, if we're to make our own decisions, what use is it to know what the market is thinking? To know what the market thinks may help us like you said, but more often it could influence, unconsciously maybe, our assumptions and estimates. Leading to forecasts that more often than not ended within that consensus of "expert" opinions.





DeepState said:


> As to the data...perhaps we can actually see and our actions seem like we aren't going straight.  However, the world doesn't move in straight lines so we curve out arcs.  This is investing.  Would you rather play with a blindfold?  I wouldn't.  Data is how the world is brought into a framework for decision making.  No-one uses 2.2 million economic series to make a stock pick.  But to have what data you need for a situation is handy.  A stack of data that is truly required in any situation is not even in these databases.  That's how much is out there and valuable.




I think you might be micro-managing. 

I just saw CSL's R&D powerpoint slides, all 110 pages of them. I haven't a clue what the heck each of their initiatives are, really, and how significant they are relative to peers or to medical sciences. 

I could find out if I want to, I guess. Could spend weeks looking up stuff, and if I have the cash maybe even bring in a few experts to lecture me etc. etc.  But even if I were interested and able to learn all that... I don't run CSL; 

I do not have enough knowledge and expertise the scientists and managers of CSL have, do not know what they know... So let say I get to know what hemoglobin blood plasma for treating sickle cell disease is... and am sure that that's where the future is and if they were to follow that they could make x in earnings but following their current path they'll make x-y in earnings? How am I going to implement that "strategy"?

Data and knowledge is good, but I think it's more important to know what we know and what we can implement.

If we are to treat share ownership as ownership in a business, I think it's best to let the managers and the skilled experts, using the capital and structure available to them, let them read and analyse data they know well and have been around most of their working life.. let them decide. Let's not do their job for them, because often we couldn't do it, and if allowed to, couldn't do it as well.


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