Are Initial Public Offerings Appropriate for Regular Investors?

Investors are people. They like novelty; get excited by something new, especially if it holds the promise of making them a whole lot richer and provides bragging rights at their next cocktail party. Maybe that’s why amateur and professionals alike tend to lose their minds in bull markets, particularly when a hot initial public offering, or IPO, is offered to them by their broker.

On one hand, had you bought into the initial public offering of Wal-Mart, Home Depot, Walt Disney, Dell, Microsoft, Coca-Cola, Target, or Starbucks, you may have had some volatile price fluctuations along the way, but there is no question that you have made enough money to substantially change the quality of your life.

A single share of Coca-Cola purchased for $40 at the IPO in 1919, for example, crashed to $19 the following year. Yet, today, that one share, with dividends reinvested, is worth over $5 million. Likewise, $10,000 invested in Wal-Mart is now worth $10 million plus. Clearly, a well chosen IPO investment can be a life changing experience if you simply make the right choice and stick the stock certificates in your safety deposit box for thirty years. On the other hand are companies such as WebVan, the bankrupt web grocer that left investors with total losses, licking their wounds and draining their portfolio of precious capital that could have compounded into huge nest eggs if given enough time.

Leaving us with the question: Should you consider investing in IPOs?

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Being India

India at the moment seems seriously blessed. It’s attracting abundance like never before in history. Two days ago IMF said “buoyant global economic outlook has prompted it to revise” upward India’s GDP growth rate by 0.6 per cent to 9 per cent for 2007. Wisdom it seems is one of the biggest exports of India pegged at USD 12 billion by 2010. If prosperity means money then it’s raining money in India, quite literally.

Private Equity Investments

India today really is capital’s favorite destination. Consider the case of private equity investments in India in 2006. According to Venture Intelligence a total of 302 deals worth $7.5 billion were reported. In the first half of 2007 168 deals have been reported at $5.6 billion. In terms of investment in 2006 the top destination was China. China received around $900 million. London came second with a little more than $800 million. India came at number three with $746 million.

Venture Capital Investments

The India investment attraction can be simply be gauged from the fact that just in the 2nd quarter of 2007 venture capital firms have invested about $112 million across 19 deals in India during the second quarter of 2007. The prominent Venture Capital firms already have offices already set in India to identify potential winners and as the India success story grows so is the attraction of newer players. Consider the case of Clearstone Venture Partners, a leading early stage venture capital firm. With US$650 million of committed investment capital Cleartone sees India a favorable destination.

According to ASSOCHAM the Indian VAS market itself is likely to be Rs.8,500 crores by next year. That’s certainly no small number in worldwide terms too. High growth domestic consumption sectors including telecom, media, entertainment and financial services are further fueling the growth.

Besides innovation probably the biggest fuel for entrepreneurial growth is venture capital investments. VC investments have been only growing in India. In 2006 Venture Capital firms invested $508 million over 92 deals in India. The amount invested during 2006 was significantly higher than that during the previous year (which had witnessing 44 deals totaling $268 million). In 2007 the VC score board so far reads 39 deals worth $242 million in its kitty.

According to Arun Natarajan of Venture Intelligence “The strong return of Silicon Valley VC firms to India as well as the rising number of new India-dedicated VC firms gives confidence that this resurgence in VC investments is likely to be sustained.”

The Flow of Money

For both Private Equity and Venture Funding the Information Technology and IT-Enabled Services (IT & ITES) industry retained its status as the favorite among VC investors during April-June 2007. Apart from Internet-based services, VC investors paid extra attention to BPO and IT Services companies during the quarter. VCs also showed renewed interest in funding “cross-border” technology companies - i.e., companies headquartered in countries like the US, but carrying out substantial part of their R&D operations in India.

According to KEC Raja Kumar, CEO of leading Bangalore-based PE firm, UTI Venture Funds “Private Equity firms are boldly creating innovative partnerships with entrepreneurs to take corporate India to new levels. I will not be surprised if the investment amount in 2007 touches $10 billion,” said “However, going forward, we have to be careful to ensure that this momentum is sustainable and does not get derailed by unrealistic expectations.”

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So you’ve read Advice on College and Advice on Getting to Wall Street. You’ve won that coveted analyst position. It’s the last week of July - in another week, you will probably finish your training and find out your group assignment. Maybe you’ve been on the job for a month or so, and you’re starting to get the hang of things.

This is your first job out of college. It’s a nutty working environment. It can be hard to find time for taking stock. In this post, I will give some advice for new investment banking analysts. Not everyone has the same experience in banking; in fact, some people don’t get a lot of benefit from it. Here are some things you can do to make the most of your two years.

Golden Rules

The Golden Rule of Analysts is: If you work hard and have a great attitude, you will be a star analyst. And a second is like it: Work for experience, not money. Keep these two principles in mind, and you will have a great experience.

First, work hard and have a great attitude. Investment banking is a service business. Your bosses (vice presidents, SVPs, and managing directors) are paid more or less on commission. (They have good base salaries too, but if they don’t bring in enough revenue, eventually they’ll be fired.) So bankers do a lot of free analysis and sales presentations, in hopes of someday earning a seven- or eight-figure fee. A lot of this work is prepared on short notice, forcing you to work very, very late.

Senior bankers expect access to 100% of your time. That is the culture. There is no way around it. 90-hour weeks will be your bread and butter. (90 hours means arriving at 8 a.m. and leaving at 1 a.m. on weekdays, plus 10 hours on the weekend - a non-demanding week.) In the busy season (e.g. January and February) you can expect to work over 100 hours for several weeks back-to-back.

Even with smart, motivated coworkers, working such long hours can be stressful. You can help your associate and VP just by keeping a positive attitude. Don’t complain or resist assignments. Don’t take criticism or correction personally. Don’t duck out the door at 9 p.m. - that’s for seasoned second-year analysts. See who needs help. If you work fast and carefully, with a cheerful attitude, you will be a star.

Second, your real pay is the experience. The learning curve is enormous. Money is incidental; you’ll be well paid no matter what, but you won’t have much time to enjoy it. If you are working 100-hour weeks to get a few extra thousand dollars, you will be miserable. Get your priorities straight: you have your whole career to make money and most of it will come in your 40s and 50s. Right now, you need to get skills, a work ethic, and good relationships with your supervisors.

For more on how to act and communicate on the job, I highly recommend two books for new college graduates: From Day One, by Bill White, the former CEO of Bell & Howell, and In But Not Of, by Hugh Hewitt. I could stop there, but here are some practical tips.

Practical Tips

Learn Excel. Excel is the basic tool for all the interesting work you’ll do. Learn to think in Excel. Spend a Saturday pulling apart an LBO to see how it flows. Get comfortable with advanced formulas (once you have INDEX and MATCH, you’ll never VLOOKUP again). I have had good luck with Peachpit Press - try their Excel Quickstart Guide by Maria Langer. Forums like Mr. Excel.com are also helpful.

Get organized. Take your level of organization from college and square it. (1) Learn or develop a naming convention for files, and stick to it. (2) Print and save all source documents. (3) When you are getting numbers from some source, highlight the number itself and tab the page. (4) If you expect to do something more than once, take the time to build an automated template. For example, if you need a histogram of market capitalization sorted by size, let your data provider download the data and let Excel do the sorting. You should only have to enter the tickers and date. A 10-minute exercise reduced to 15 seconds.

Insist on running models. Sometimes there’s so much other work to do that your associate (post-MBA coworker/direct supervisor, probably not a former analyst) will end up doing all the financial analysis. That’s why you’re here, so don’t let six months go by without running a DCF, accretion/dilution, or LBO model. Make sure your associate is letting you take over these tasks - then he or she can spend more time turning into a VP. Also, let the staffer know your interest.

Choose your group carefully. It does matter who you work for - what product or industry, and what banker. Unfortunately, it’s tough to tell what you’re getting into, especially if you get placed into a group when you are hired or during training. Look for industry-level research or news coverage that can help you predict how much activity your sector will see in the next few years. If you get a hot sector, all your time will be taken up with deals, not free work or pitching. Awesome!

Still, it helps to work for the smarter, more connected, more practical bankers. At first this is mostly luck, but if you like your boss, perform well and he or she will help you get staffed on more of his or her projects.

(Note, some groups are more “transferable” than others. There are more outside opportunities if you covered consumer products or pharma than if you covered West Coast insurance companies.)

Life After Banking

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When it comes to choosing a credit card, you have many options to consider as a means of achieving your goal. Ultimately you want a credit card that is the cheapest, and that gives you the most flexible terms and conditions. However, judging those two factors can be difficult for those of us that are not credit card experts. Before you decide for sure that you wish to get a credit card, why not consider the alternatives that are available?

The Alternatives

Debit Card – should you want a credit card as a means of ensuring that you can pay with a card, then why not consider getting a debit card instead? This will mean that you are not borrowing any money and that they money is coming out of your bank account.

Bank overdraft – you should consider using a bank overdraft if you are wanting to borrow money over a longer period of time, as you may find that it will work out cheaper than a credit card. A bank overdraft is basically like a loan of money, however all it means is that you are allowed to have a negative balance in your bank account.

Bank Loan – a bank loan is often the best solution when you need a loan of money over a longer period of time, or if the amount you need to borrow is a larger amount than what a person would usually borrow using a credit card or a bank overdraft.

Friends and Family – if you want to borrow money, then you could consider asking your friends and family rather than asking a financial institution. Although many people are in a position where they are not able to do this; some are, and if they can, then it can often work out to be a good solution.

Factors to Consider when Choosing a Credit Card

APR – when choosing a credit card, one factor you need to look at it APR. APR is the amount of money that you will get charged for borrowing money. This amount means the interest rate that you will be charged over the course of a year, and is usually presented in percentage form.

Limit – this is the amount of money that you will be allowed to borrow. When you reach the limit on your credit card, then that is you; you are back to having no money. Despite that, limits can often work well for ensuring that you keep any debt under control.

Credit Rating – if you always pay your bills on time, then you will most likely have a good credit rating. If you manage to always pay your bills on time with a credit card, then this will also help to make you look like a person who is more than capable of sound financial management. Because it is important to keep a good credit rating, you should always do whatever it takes to keep your credit rating as good as possible.

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Even a person with significant financial or business knowledge finds navigating the financial world difficult. The world of finance is a world full of legal riddles and unfamiliar speech. To help professionals and laypersons to maneuver in this complex world, a multitude of analysis tools, like a finance calculator, comes into play.

A finance calculator is an online tool which allows anyone to calculate the specific data for a financial plan that works with a client’s specific budget to meet their specific needs. There is a finance calculator for everyone.

The most popular financial calculator is used to calculate mortgages and their impact on one’s household budget. These mortgage calculators compute amounts of monthly payments as well as the impact of any prepayments. Using a mortgage calculator, a potential owner can determine how much he can afford in a mortgage as well as if he would like a 15-year or 30-year term mortgage and which is the best for his current and potential financial situations. Often mortgage calculators help consumers determine if refinancing their current mortgage is a worthwhile investment of time and their money.

Mortgage calculators help a consumer become financial-savvy and easily able to determine if a fixed or flexible interest rate is better for them or if allowing for adjustments would be a high risk or low risk course of action.

Other financial calculators cover a variety of financial areas including:

1. Retirement Savings and Planning

2. Social Security Payments

3. Roth IRA and Traditional IRA analysis

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Overseas banks keen for a piece of China’s red-hot brokerage sector will have to swallow some rich prices to buy into domestic securities firms, which are in no hurry to make deals as they focus on their own share listings. But for investment banks such as Citigroup and JPMorgan, a strategic partnership with a local securities house is a must in the long run, if they want to cash in on China’s rapidly growing stock markets, whose capitalisation has reached nearly 20 trillion yuan ($2.65 trillion), exceeding Hong Kong.

Besides Citi and JPMorgan, banks including HSBC and Credit Suisse are shopping for Chinese partners. Even Morgan Stanley, which launched China’s first such investment banking joint venture in 1995, is eyeing its second deal, banking sources said. “You cannot ignore China if you want to explore new profit streams in emerging markets,” said Philip Leung, a Shanghai-based partner for Ernst & Young.

Mainland China is on track to overtake Hong Kong, as Asia’s biggest centre for initial public offerings this year. Analysts have said, they expected fund-raising by Chinese firms via domestic IPOs to hit 400 billion yuan this year, up from 165 billion yuan in 2006 as Beijing encourages more Hong Kong-listed firms to sell shares at home. Most overseas banks will miss out on the current IPO boom — except for Goldman Sachs, UBS and Morgan Stanley, which established partnerships in China when the industry was still mired in a severe downturn.

Despite the recent lifting of a ban on foreign acquisitions of Chinese brokerages, major local players are in no mood to rush into partnerships, as they speed up preparations for initial public offerings to fund expansions and boost market share. Market leaders including Guotai Junan Securities, Everbright Securities and Orient Securities are gearing up to launch IPOs in the first half of next year.

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