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Google™, the company, is planning to sell its corporate stock to the public for the first time. That initial public offering is creating quite a stir, so this is an apt week to enjoy some words from the world of stocks and bonds.

IPO - a corporation's first offer to sell stock to the public
[acronym for initial public offering]
quote:
. . . .Google Inc.'s initial public offering has a lot of people salivating for a piece of the action -- an appetite that the Internet search engine leader hopes to satisfy by inviting the masses to the bidding table.
. . . .While an egalitarian auction may sound like a refreshing change after years of shady brokerage dealings, the approach could backfire if Google can't meet the intense demand or the bidding pushes the IPO price so high that the shares are perched to topple once they begin trading.
. . . .For now, most IPO and technology observers are applauding Google for being bold enough to challenge the status quo with an unorthodox system that could empower individual investors.
- CNN.com, Google stock auction: IPO revolution or disaster?, May 11, 2004 (this very morning)
What is "unorthodox" about Google, Inc.'s IPO? We'll talk about that in the next few days.
 
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Google Inc. is using an unorthodox system. What is the orthodox one?

underwriter – one who buys a stock or bond issue from a company, to resell it to investors.
. . . .(In other words, a middleman, buying the stock in bulk and selling it at retail.)
More generally,
underwrite – to assume risk, as when offering an insurance policy or bringing a corporation's new securities issue to the public

Underwriters will often price the stock low and place it with their favored customers.
quote:
In traditional IPOs, underwriters help fix the number of shares a company will sell and set the offering price, with favored clients often reaping the benefits of a big first-day run-up in the stock price.
– Ruth Simon and Elizabeth Weinstein, Investors Eagerly Anticipate Google's IPO, Wall Street Journal, April 30, 2004
 
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I have heard an early use of "underwriter," in the insurance sense of the word.

When first exploring the new world, seafaring was risky. One could fit a ship, with a loan, at a given interest rate (e.g. 12%). Or one could seek a forgivable loan, payable only if the ship did return safe, but at a higher rate (e.g. 16%).

In time, specialists took different parts of the risk. Bankers would write the loan at 12% to finance an expedition. Other punters, congregating in Lloyd's coffee house, would underwrite the loan for a further 4%, and only payoff if the ship did not return.

In that way, the English landed gentry diversified their land rents into an uncorrelated insurance investment.


RJA
 
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Robert says, "Other punters, congregating in Lloyd's coffee house ..."

What's a punter?

Lloyd's coffee house? Any connection with Lloyd's of London?
 
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punter

.... and ...

Barney Google reveals ==>
History of Lloyd's of London

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Chinese wall – strict confidentiality rules within a securities firm, barring disclosure of certain information between departments.

(A figurative "wall" between departments, to prevent illegal use of insider information, when the firm is "wearing many hats". Investopedia notes: "Following the crash of 1929, the U.S. Government sought to provide a separation between investment bankers and brokerage firms. Named after the 'Great Wall of China,' this barrier was intended to limit the conflict of interest between objective analysis and the desire to have a successful stock offering (or IPO).")
quote:
In 2003, Morgan Stanley, CSFB, Merrill Lynch and seven other brokerages paid $1.4 billion to settle claims ... that their stock analysts had misled investors by touting shares of companies to win investment banking work. The ... so-called Chinese wall separating investment bankers from the research arms of their employers had broken down.

A parallel conflict exists with some investment banks and their mutual funds, says former SEC attorney [Edward] Siedle. "The SEC has accepted this fiction of Chinese walls in many different contexts, and it is the least palatable with mutual funds, because a fund adviser wears so many hats," he says.
- Citigroup Uses Mutual Funds as `Dumping Grounds' for Clients, Bloomberg, April 29, 2004

 
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Historical footnote -- Investment banks purport to represent both those who have money (investors) and those who crave it (issuers). Ibanks do this by having separate staffs, brokers who cater to investors, and bankers who advise issuers, separated by said wall.

These two groups meet at the capital markets desk to set prices, and do battle on behalf of their constituents. There is sand on the floor to sop up the blood (hence arena, from the Latin for sand.)

This breaks down, as Machaivelli warned, when mercenaries decide they have more in common with each other, than those who hire them. They then get spitzered, each back to their own side of the Chinese Wall. This happens two or three times a century.


RJA
 
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As I understand it, today's term originally was the special lingo of statisticians, but it became popularized after it was applied to the stock market.

random walk theory – the view that past movement or direction of a stock's price cannot be used to predict its future movement .
[popularized by the 1973 investment classic, A Random Walk Down Wall Street, by Burton Malkiel. The basic premise of the random walk theory is that forecasting stock prices is a useless exercise.]

random walk – a sequence of steps in which the characteristics (direction; size) of each step is randomly determined
quote:
"Life is a random walk, isn’t it?" he says ruminatively. "If you had told me at 18 I would end up an estate agent, I would definitely not have believed you. I probably thought I was going to be a scientist."
– Aubrey Adams, "boss of Savills, the best-performing property firm last year", as quoted in The Times (London), April 25, 2004
 
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random walk

Reminds me of the eponymous brownian movement (or motion): "The random movement of microscopic particles suspended in a liquid or gas, caused by collisions with molecules of the surrounding medium" (A-H); named after English botanist Robert Brown.
 
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Good connection jheem. Perhaps you'll add "brownian" to the eponym page?

Imagine flipping a (fair!) coin. Heads, take a step left, tails, take a step right. The distribution of your position after "n" flips is intuitively easy - most likely you'll be at the starting point, highly unlikely you got "n" heads or "n" tails. For a few flips that is the binomial curve. As we flip more, the distribution approaches the Normal or "Gaussian" curve. And the latter is another eponym candidate.


RJA
 
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Thanks, RJA. I don't think I can add things to that page. Perhaps wordcrafter will do.
 
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I've heard 'drunkard's walk' used for a random walk, in the mathematical sense.
 
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Robert, jheem, thank you. Will do.

dead cat bounce [or dead-cat bounce] – a temporary recovery from a major drop in a stock's price. Well-explained by a February, 1986 quotation:
quote:
This applies to stocks or commodities that have gone into free-fall descent and then rallied briefly. If you threw a dead cat off a 50-story building, it might bounce when it hit the sidewalk. But don't confuse that bounce with renewed life. It is still a dead cat. – Raymond F. DeVoe Jr. at the investment firm of Legg Mason Wood Walker
Quinion, citing WordSpy, lists this as the earliest print-use yet found, but WordSpy has now documented it back to a December 7, 1985 quote, one that clearly shows that the term was already common stock-market jargon . As of last summer one major print dictionary, Webster's Collegiate, added the term.

'Dead cat bounce' could be applied to a temporary bounce in a downtrend apart from the stock market. That natural extension is rare, but perhaps we will see it used to describe swings of fortune in the US presidential campaign.
quote:
The early days had been a long time ago. Their love had risen, then fallen like a dead cat thrown from an apartment building. Their new lift on life was a dead cat bounce. He was a drug dealer. – Robert Bingham, Lightning on the Sun: A Novel

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Let's just hope there aren't many cat lovers in the field of stocks and bonds! Wink

The fact is, I wonder why it had to be a cat. Wouldn't any animal work?
 
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I suspect 'dead cat' is a tribute to the ability of cats to land on their feet, unlike the stockbrokers who jumped out of windows, in the Great Crash...


RJA
 
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Earlier we asked, "What is "unorthodox" about Google, Inc.'s IPO?" The answer: "In a sharp break with tradition, Google will offer shares through a process modeled after a Dutch auction."
– Wall Street Journal, April 30, 2004, as cited above for "IPO" and "underwriter".

Dutch auction – an auction in which an item is initially offered at a high price that is progressively lowered until a bid is made and the item sold.

quote:
In the traditional Wall Street underwriting, the lead bankers set a price well below the level of actual demand in an effort to assure buyers a quick and easy profit. [They then] dole out shares to their favored clients.
. . . .Google, to its credit, is not going to play this game. Google will sell shares using a "Dutch auction," buyers bidding for a fixed number of shares. Bids are accepted from highest to lowest with the price set at the level needed to sell all the available shares.
– Jeffrey R. Scharf, Santa Cruz Sentinel, May 9, 2004

The company [Google] will use a so-called Dutch auction to go public. A Dutch auction allocates the stock based on popular willingness to pay a price determined through a public bidding process. The underwriters can't give preferential treatment, even to friends and family, who, like everyone else, have to bid to win allocations.
– Greg Morcroft, CBS.MarketWatch.com, April 29, 2004

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I suspect 'dead cat' is a tribute to the ability of cats to land on their feet,
Oh, that makes perfect sense, Robert. Why didn't I think of that? Robert, we do love your presence here! I had been worried that you were one of those people who finds us, posts for a few weeks, and then leaves. Great to see you back!

Dutch auction – an auction in which an item is initially offered at a high price that is progressively lowered until a bid is made and the item sold.

That sounds vaguely similar to "Dutch treat."
 
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quote:
That sounds vaguely similar to "Dutch treat."
Confused Only inasmuch as both phrases contain the word "Dutch".

A "Dutch treat" is when two or more people go out together, and each pays their share of the expenses.


Build a man a fire and he's warm for a day. Set a man on fire and he's warm for the rest of his life.
 
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Okay, arnie, just remember, I said vaguely. My thinking was that at a Dutch auction the price is lowered until it is sold; in other words, it could sell for almost nothing. It's cheap. Likewise, a Dutch treat is cheap because each person pays for his/her own.

Alright....I was pushing the envelop a bit. Thank Heaven's for the vaguely! Razz [I can't get away with anything on this site! Roll Eyes]
 
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Next we'll hear that there's no relationship amongst: Dutch uncle, double-dutch, Dutch concert, Dutch courage (depends on your brand of whiskey), Dutch doors, Dutch gold, Dutch oven, and Flying Dutchman.


RJA
 
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