My friend Professor Scott Galloway – author of The Four and Algebra of Happiness – has launched a new podcast series and I’ve agreed to become his markets contributor. We taped this the other day and it just hit YouTube over the weekend. We talked about the unavoidable conflicts wirehouse firms have when they’re doing both initial public offering underwriting and wealth management, trying to set an IPO’s price so that the company raises the optimal amount of money at the optimal valuation, while there’s still some potential upside left over for the other clients at the bank to make money on the stock.
It usually doesn’t work out great for one of the two parties, although the bank gets paid either way. WeWork is one of those extraordinary situations where pretty much every side lost.
There’s nothing inherently wrong with this conflict existing and IPOs are a critical part of the capital markets ecosystem. Someone has to buy. Investors are better off understanding how and why it exists before participating.
We also get into the difference between how young people should feel about market volatility versus how their parents ought to feel. Not all investors should be rooting for the same near-term outcomes.