Can the individual investor successfully navigate his or her way through a ponderous prospectus? In our first installment in this series, BUYER BE WARY – BETWEEN THE LINES PART I, we began to look at some of the questions that a thoughtful investor may want to ask. We continue that process, beginning with a few thoughts about the underwriter.
The Underwriter
The name of the underwriter or underwriters appears on the cover of the prospectus. The IPO underwriter may be a household name with a national reputation or an obscure regional broker-dealer. In either case, the investor should want to know the underwriter's track record. For example, how many offerings have they underwritten? How have those offerings fared? Brokers sometimes tout their success by telling potential investors that their firm's previous underwritings increased in value significantly immediately after the offering. That, however, is only a small part of the picture. An investor should want to know how the stock (and the company) performed over a longer period of time – three months, six months, two years. Did shares skyrocket immediately after the offering, only to plummet earthward once the brokerage firm's best customers had taken their profits? Or did the company's shares build value over time? If you're a speculator you may not care. But if you're a long-term investor you will certainly take note of this factor.
Information about underwriters is available through the SEC's Edgar Online site (www.sec.gov), while stock performance can be found through NASDAQ (www.nasdr.com), the OTC Bulletin Board (www.otcbb.com), or a variety of informational databases (such as Yahoo and AOL).
The underwriter's reputation and disciplinary history are other factors that investors would be well advised to consider. Some prospectuses will indicate whether the underwriter has run afoul of the regulators or is involved in any disciplinary proceedings brought by the SEC or the NASD. Sometimes, however, the prospectus will remain silent on these issues because the individuals drafting the prospectus (the Company, the underwriter, and teams of attorneys representing each) don't consider this information "material" to investors. So check for yourself. The NASD provides disciplinary information about all licensed brokers and brokerage firms (www.nasdr.com). You certainly will want to know whether the underwriter has been charged with engaging in questionable sales practices in the past. For example, have brokers working for the underwriter misrepresented the business or prospects of a company to prospective investors? Take advantage of your ability to access those details.
Catch your breath. In our next installment we will conclude our look at the minefield commonly known as a prospectus.
IF YOU HAVE QUESTIONS OR COMMENTS FOR STOCKPATROL.COM, CONTACT US AT editor@stockpatrol.com
The Underwriter
The name of the underwriter or underwriters appears on the cover of the prospectus. The IPO underwriter may be a household name with a national reputation or an obscure regional broker-dealer. In either case, the investor should want to know the underwriter's track record. For example, how many offerings have they underwritten? How have those offerings fared? Brokers sometimes tout their success by telling potential investors that their firm's previous underwritings increased in value significantly immediately after the offering. That, however, is only a small part of the picture. An investor should want to know how the stock (and the company) performed over a longer period of time – three months, six months, two years. Did shares skyrocket immediately after the offering, only to plummet earthward once the brokerage firm's best customers had taken their profits? Or did the company's shares build value over time? If you're a speculator you may not care. But if you're a long-term investor you will certainly take note of this factor.
Information about underwriters is available through the SEC's Edgar Online site (www.sec.gov), while stock performance can be found through NASDAQ (www.nasdr.com), the OTC Bulletin Board (www.otcbb.com), or a variety of informational databases (such as Yahoo and AOL).
The underwriter's reputation and disciplinary history are other factors that investors would be well advised to consider. Some prospectuses will indicate whether the underwriter has run afoul of the regulators or is involved in any disciplinary proceedings brought by the SEC or the NASD. Sometimes, however, the prospectus will remain silent on these issues because the individuals drafting the prospectus (the Company, the underwriter, and teams of attorneys representing each) don't consider this information "material" to investors. So check for yourself. The NASD provides disciplinary information about all licensed brokers and brokerage firms (www.nasdr.com). You certainly will want to know whether the underwriter has been charged with engaging in questionable sales practices in the past. For example, have brokers working for the underwriter misrepresented the business or prospects of a company to prospective investors? Take advantage of your ability to access those details.
Catch your breath. In our next installment we will conclude our look at the minefield commonly known as a prospectus.
IF YOU HAVE QUESTIONS OR COMMENTS FOR STOCKPATROL.COM, CONTACT US AT editor@stockpatrol.com
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