[jussij]

> but that was just free money

Except the employees would have been sacrificing a higher salary for these shares so they where hardly free.

> The only people hurt by the initial over valuation were the people that bought high

The people that got burnt where those that read the IPO document and assumed it was not a work of fiction. The people that made money where insider trading on information not yet public.

The others that will get hurt are the next set of companies that try to float. The market will be reluctant to make the same mistake again.

Bad IPOs damage the credibility of the market and dmaage the ability of companies to float and that Facebook IPO was just a joke.

[robbiep]

Your post kind of suggests that this was the first major company to ever be overcapitalised and incorrectly valued. This is patently not the case. The people that bought into the FB IPO did so out of their own free will. That they believed the valuations is down to the hype surrounding the FBIPO and the hard work of the underwriters to convince investors of the strength of their case. There are 2 types of investors, informed and uninformed. These were uninformed investors. They operate under the principle that they can exceed the average market return (i.e. they don't understand the efficient markets hypothesis).

The market doesn't make these mistakes, the investors do. The market is the mechanism by which mistakes in valuation are discovered, as the IPO trends towards its fair value.

The fact that these are bad for the credibility of the market does not deter wall street for looking out for more sources of revenue (in the form of underwriting IPOs). It may make companies thinking of raising cash on the market think again - ('Is our valuation correct? How can we avoid being overhyped?') but in the long run this is nothing different to what has happened in hundreds of IPOs in hundreds of stock markets in hundreds of companies over the past several hundred years.

[josephlord]

It is quite possible to understand the efficient market hypothesis and not believe it. In fact I think that everyone who invests in the market in forms other than tracker funds doesn't believe it holds.

The efficient market hypothesis is a useful thought experiment but the assumptions required for its proof are unrealistic and it doesn't explain real world volatility.

I do think the thought process of 'what do I know that the market hasn't taken into account yet' is a useful one and that if the answer is nothing buy a tracker. The knowledge could be proper research that disagrees with the media about a company.

[robbiep]

I like and agree with your point

[jussij]

I have no problem with that fact that the IPO was a disaster. As you point out this has happened before and it will happen again.

What I don't like is the FB prospectus was never a true and accurate representation of the company and everyone on the inside knew this, but they failed to tell the public.

And what's worse is these 'well informed' insider investors then illegally used this inside information to make lots of money since they new the IPO was over valued and went short.

[wkasel]

Spot on.