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Financial Happenings Blog
Monday, January 29 2007

A theme of this blog is not to get too carried away with initial public offerings or share floats.

An article in todays Courier Mail provided a reminder of this.  Last year one of the bigger brisbane based floats was for RiverCity Motorways, which floated at 50 cents a share.  They are currently trading at 39.5 cents a share.

The pattern of the shares - which performed well after the float and are now underperforming is not at all unusual with floats - indeed it is a pattern identified in the academic literature that tracks floats (initial public offerings).  There are plenty of examples of recent floats that have underperformed after listing - think of Pacific Brands, Virgin Blue, Promina for a while, many of the recent listed investment companies and so on.  The secret is this - don't be blinded by the lure of a float as a sure thing. 

I am always impressed at the little details that the financial services industry uses in its bid to systematically defraud people of its money, and the word 'float' is a nice touch.  It sort of suggests an optimistic outlook - what could go wrong?  What could to wrong - ask initial investors in the RiverCity Motorways.




Posted by: Scott Francis AT 10:42 pm   |  Permalink   |  Email
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