American Consequences - August 2017



WHAT RIGHTSWILL YOU HAVE AS A SHAREHOLDER? Traditionally, when companies issue equity to shareholders, those shares come with voting rights. "One share, one vote" used to be the conventional wisdom. But that is now changing, especially in the technology space. The most outrageous recent example occurred earlier this year with the IPO of social-media company Snap (SNAP). In that case, new investors bought shares with absolutely no voting rights whatsoever. In fact, Snap's 27-year-old founders control nearly 90% of the company. As an investor, you need to ask yourself if you are comfortable with companies taking investor money, but not giving investors any say in how the company is operated. If you're looking at investing in an IPO, get answers to these questions first. And remember, if it sounds too good to be true... it probably is. Kim Iskyan is publisher of a joint venture between two independent financial publishers, Singapore-based Truewealth Publishing and Hong Kong-based Churchouse Publishing. His AsiaWealth Investment Daily letter is a must-read if you are at all interested in the explosive growth of the Chinese middle class. (Legendary investor Jim Rogers reads it every day.)



Most brokers tend to save their IPO allocations for their "favored clients" – customers who trade with large sums of money. So underwriters and "big investors" tend to have the first bite... And individual investors are often left with the table scraps, or with the shares of a dud offering. To paraphrase Groucho Marx, would you want to buy shares of a company that has shares available to sell to you? WHAT ABOUT FEES? Not long ago, investment banks made a killing on IPOs. They could earn around 7% of total proceeds, though that could vary according to the size of the deal. In effect, that meant investors were only getting $0.93 of value for every dollar they invested. Thankfully for investors, that's all in the past. Today, fees are a lot more reasonable. But keep in mind that your broker will stand to make a lot more by selling you shares of an IPO than by selling you a stock that's already trading. 6.

98 | August 2017

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