Blackstone IPO Causes Pain and Regret

Jun 26, 2007: 9:51 AM CST

I had to point the Blackstone IPO (BX) chart out to readers, simply for its major irony to me. I watched a television report where it showed a montage of news sources that were literally giddy with excitement discussing the Blackstone Financial Group IPO and how it will make investors so much money and how traders were so excited to invest in the successful fund, and how wonderful it was, and how the Chinese government did so, and how nothing could go wrong.

As you may suspect, something went wrong (in the short term, that is – I’m not speaking of long-term price appreciation here, which I believe will happen).

This story is one of the many instances of ‘retail traders’ or new traders being lured by the Siren song and then dashed among the rocks.

View the chart:

bx-june-26.png

Giddy traders rushed out, possibly cashing out positions in long term mutual funds and the like to speculate on this ‘sure thing,’ and probably bought in the $37.oo to $38.oo range. Today, we hit a new low at $30.50.  The IPO was initially set at $31.oo.  The good news is that volume is clearly drying up, but please note that over 100 million shares were traded on Friday. Yesterday – 50 million.

There are literally hundreds of thousands (possibly millions) of disappointed traders/investors (in the short-term), and many have bailed out of their positions at a possible 30% loss in three days. Those holding tight are experiencing pain, but it should be temporary. Patience is key, here, as well as allowing the crowd to get ‘rinsed’ before entering (which appears to be happening).

Trading is hard, and what is popular doesn’t always make money.  In fact, how many people could have known that the way to make money with Blackstone’s IPO was to short it?!  And how many people could have shorted it (psychologically) when literally everyone everywhere was bullish?

That is exactly why it would have worked.

3 Comments

3 Responses to “Blackstone IPO Causes Pain and Regret”

  1. Robert Says:

    I tried, but of course, too hard to borrow.

    Someone was shorting that darn thing, just not the unwashed and huddled masses. In fact, it was their shares that the prop traders probably used to scare them and bail them out. IMO.

    BTW, I am a frequent reader of your blog. I will try and comment more. Keep the good work.

  2. Zip Says:

    Agreed, the small guys always get slaughtered. This IPO is probably the biggest disappointment of the year.

  3. Corey Says:

    Thank you both for the comments.

    I left the IPO alone because my strategy calls for avoiding IPOs. Couldn’t avoid hearing the hype, though! It always works out that way in terms of shorting, it seems. When you want it, you can’t get a position on (for whatever reason) and when your position is executed immediately, better watch out!