Hi Tastes Like Chicken; Re the PALM collapse... Certainly the float wasn't 23 million shares, was it, most of the stuff was still held by COMS. I doubt that the underwriters had anywhere near enough shares to feed to the public, because COMS didn't really need the money from the shares. They were just bringing it public in order to create a public market for the shares.
I have this theory that when underwriters bring a small float company like this public, they underprice it in order to allow themselves a better profit on the smaller number of shares that they get to sell. Another similar runup was in FMKT, and a bunch of other .net companies. The public just doesn't care about the market cap, they will buy in at any price.
I don't think the underwriters were short from day one. Their idea of a great time is to get the issued stock they hold sold out as quickly as possible, at a price at least as high as what they owe the company, (and as high as possible), but there really is no big reason for them to short a high flyer like PALM. I would bet that they did load their shares onto the public at a pretty high price, though, but that is not the same as going short. The long term road to profits is in the avoiding of excess risks.
Similarly, the MMs just want to make money off the order flow. Why should they risk money shorting a company that can manipulate its stock price with press releases when they can simply play off the order flow? At a casino, the house is not the participant that has to take the big risks in order to walk away with a profit.
There is also too much of a chance of a group of mutual funds deciding to use the stock as a vehicle to make themselves look good for a quarter or two while collecting up a massive amount of somewhat illiquid overpriced stock.
In any case, there is no question in my mind that the market makers and underwriters were not the guys who ran it so high on opening day. If the underwriters ran it up by holding shares back, then they ended up selling those shares at a reduced profit later. But the retail interest in the stock was tremendous.
My feeling on this is that the stock price movement is entirely explicable with the law of supply and demand. I saw a friend buy into it at $95 as it slid, thinking that it was now a bargain. These same people were the same ones who thought that $160 per share was a reasonable deal. They wanted it. They wanted it bad. They would pay anything for it. If the market makers did go short, the only effect was that people like these ended up with shares at a cheaper price than they expected, and so lost less money than they otherwise would have.
-- Carl |
