Tag Archives: flash crash

What you need to know before you invest in IPO’s

I have not seen this type of brand name IPO trading volume for quite some time. From Groupon (GRPN) and Pandora (P) to Zynga (ZAGG) and now Avaya, the media would have you believe that investing in a brand name IPO is a quick fix for your portfolio.

Take the recent public stock offering in LinkedIn (LNKD) for example. The IPO price was set at $45 and jumped to $90 after one day of trading. As of this writing, the price is just below $73. At its current valuation, Morningstar estimates the Price-to-Earnings (P/E) ratio at 466. By comparison, the tech-heavy NASDAQ has a P/E of less than 20 (as of this writing).

Clearly, many people are very excited about the LinkedIn IPO and it shouldn’t surprise you that investors have had a long history of enthusiasm for IPO stocks. But has this enthusiasm ever paid off over the long-term? Continue reading

The Flash Crash that Caused the Flash Crash?

Michael Gayed of Pension Partners has a thought-provoking piece up on Seeking Alpha. The topic: a pattern he found that shows a smaller “flash crash” in one proxy for high yield junk debt preceded the larger equity free fall May 6. Continue reading

Diversification and Investor Distrust

Investors don’t trust the equities markets. That’s the theme of a number of articles out over the past couple of days.  The Wall Street Journal’s portrait of panic on the day of the Flash Crash details how massive institutional traders’ behavior lead to the the amazing downward spiral and how only a market rumor — of a “fat” fingered mis-typed trade — slowed it. Plenty of people in the piece are worried we could see a repeat. Continue reading

Volatility, Efficient Markets and Human Behavior

In an earlier post, I quoted testimony given May 20 before a subcommittee of the Senate Committee on Banking, Housing and Urban Affairs about the “flash crash” rapid market drop of May 6. There  Larry Liebowitz, Chief Operating Officer of NYSE Euronext argued that with modern technology “fear gets transferred to the market faster than ever.”  Is that the market being super efficient? Not really. Fear is an emotion, a human behavior, not information about the underlying investments. Continue reading

Hunting the Flash Crash’s Cause, and a Fix

More than two weeks after the May 6 “Flash Crash”, it’s still not clear what caused that 700 point drop in the stock market. Regulators now say the  whole story may never come out. Continue reading