Wednesday March 26, 2014
A stock becomes public by having an initial public offering or IPO. See F 1 for King Digital in previous post.
The underwriter, a firm like Merrill or Goldman or J P Morgan, buys the stock from the issuer and sells it to the public. The underwriter makes a profit on the difference plus feesh charged. It is incumbent on the underwriter to guess the 'right price' for the new issue. As we saw with King Digital, the underwriter guessed incorrectly.
ZYNGA
Not long ago, playing Farmville was all the rage. Zynga was the creator of Farmville. As you can see the underwriters initially guessed corectly, the stock moved from 9 to 16. Sure the buyers were happy but what about ZYNG, they were unhappy. The firm saw those dollars as dollars they should hvae had in the initial price. But such remorse was short lived. ZYNGA then collapsed 87% from its high to $2.
I mentioned that we were at an interesting juncture for stock prices. HEre is what I mean.
S & P
The S & P 500 are the five hundred largest stocks. Their collective movement is Representative of the market as a whole. As you can see prices are at a new high for the last 15 years. NOtice the momentum indicator at bottom, the MACD is at a new high.
This might be a good time to read my other blog
http://www.themarketperspective.com
Now why is it that one day ZYNGA is worth $16 and then the same company weks later is only worth $2.
While the finance books trot out all sorts of random walk and valuation explanations, the real reason I have concluded after years of resaerch is
This link to the Socionomics Page outlines the basics of social mood. Happy people buy stocks and listen to upbeat music in an expansive mood. Unhappy people sell stocks and listen to downbeat music. Happy people wear bright colors, unhappy people express their mood with drab colors.
Think I am kidding? Have you seen any photos of any happy people in the Ukraine, Syria, or Venezuela?
For that matter have you ever seen a photo of any ordinary person in Russia who appears even remotely happy, I know I have not.
And that is the reason the population of Russia is going down. Yes, the birth rate has dropped below the 2.1 children per couple needed to maintain a constant population. Russia is paying moms to have kids, but it is not working. The problem rather obviously, at least from here, is that depressed people don't procreate, they don't see bringing children into their world.
At any rate, read the section on socinomics and we will be back with more tomorrow.
So find any of this interesting?
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