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New IPOs Hitting The Market More Dot-Bombs?

By Mitchell Clark, B.Comm. for Profit Confidential

When stocks are hot, you can make money in initial public offerings (IPOs). Wall Street had a phrase representing the so-called confidentiality between corporate finance departments and research-the "Chinese Wall." In practice, the Chinese Wall was a joke; it should've been the "Chinese Fall."

When big IPOs came to market, the research department at the firm I worked for would always issue a "Buy" rating a few weeks thereafter. Even though many of these IPOs declined on the stock market after listing, I never once saw a "Sell" rating. It was an industry-wide, 100% conflict of interest. Research analysts (an expense for the firm) had to toe the line set by corporate finance (the firm's fee generator). Analysts knew they would get fired if they didn't cheerlead. Ratings of IPOs were-and still are-totally fraudulent.

And that's what Wall Street is really good at: packaging a product and selling it to the marketplace for a cut. Nothing else matters but the money. When I was a stockbroker, my boss would tell me to go hang out with real estate agents, doctors, and dentists. Instead of cold-calling potential clients, I called the trading floor to solicit views. Needless to say, that career path quickly ended. They did offer me another job, but I said, "No, thanks."

Wall street is a system. At the retail full-service level, Wall Street is always hiring. They learned from the insurance industry that hiring stockbrokers is just a numbers game. Bring them in, do sales training, get the broker's assets from their family and friends, then repeat. Turnover is high. At the institutional level, it's a bit of a different game; but no matter what, the sell side only sees you as a dollar sign. Trust me: that's what a stockbroker is trained to do, not research the market. That's why Wall Street pays so well.

There have actually been some really decent IPOs recent… Read More