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by robbiep
5066 days ago
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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. |
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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.