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

[TPI]

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.

 

[luutzu]

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.

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

 

[pixel]

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.

 

[burglar]

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.

 

[VSntchr]

+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?

 

[TPI]

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.

 

[TPI]

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?

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...

 

[luutzu]

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...

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

 

[Julia]

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.

 

[luutzu]

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

You'd be surprised.

 

[Julia]

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?

 

[luutzu]

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.

 

[So_Cynical]

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.

 

[Julia]

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.

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.

 

[skyQuake]

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?

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

 

[luutzu]

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.

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.

 

[DeepState]

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.

 

[burglar]

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.

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!

 

[luutzu]

+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.

View attachment 60416

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.

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.

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.

 

[burglar]

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!