How Come the Little Guy Can’t Get In on Those Hot Initial Public Offerings?
Q. I tried to get in on a recent hot initial public offering of a new company, but my broker told me all the shares had already been taken by mutual funds and large institutional investors. Is this true? Isn’t that a monopoly?
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A. There are no stupid questions in personal finance. But there are questions that mark the questioner as a newbie. One is: How can I make a safe 10% return? The other is the one you just asked.
The short answer is yes, it’s true. As to whether the situation constitutes a monopoly--well, no, not in the classic sense, because there is plenty of competition involved. It’s just that not much of the competition includes the little guy.
Individual investors can and do get ahold of IPO shares, typically in one of three ways. 1) Brokers usually reserve hot shares for their biggest individual clients. If you have more than $100,000 or so in your account, and you trade a lot, you might qualify. 2) A few online brokerages, notably Wit Capital and E-Trade, sometimes have shares of certain IPOs available to smaller fry on a first-come, first-served basis. 3) Many people get shares either by working for the company that’s going public or by cozying up to someone who does. Companies going public often have “friends and family” allocations to sprinkle around.
You shouldn’t assume that an IPO is a ticket to riches. IPOs can and do flop; it’s just that the big winners grab the headlines. Many studies have shown that IPOs tend to trade below their offering price within a few months. If you really like the company and think it has long-term potential, you might wait until the furor has died down.
If you’re really interested in trying to break into this tricky market, however, track down Tom Taulli’s book “Investing in IPOs” ($24.95, Bloomberg Press).
No Such Postmark Law, Honest
Q. I was very much interested in your column about payments to credit card companies that were not properly credited. I clearly remember that Congress passed a law requiring that the postmark be accepted as the date of receipt for any payment made through the U.S. mail. This was maybe a couple of years ago, but recently the issue came up when I was dealing with payments to a utility. I was astonished to be unable to find documentation of any such law.
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A. You couldn’t find the documentation because the bill proposing it, the Postmark Prompt Payment Act of 1995 (H.R. 1963), never made it out of the congressional subcommittee where it had been sent to die. The bill had 31 co-sponsors, but also significant opposition from (surprise!) banks, credit card issuers and merchants.
A credit card company is required by law to post your payment the day it is received by the company itself (or by the processing company that handles its payments). Postmarks are irrelevant. Which means customers have to rely on the credit card company’s competence and honesty in posting payments.
You can imagine how well that works. Readers have sent me a raft of horror stories about companies that claimed payments hadn’t been received in time and were thus imposing late charges and higher interest rates.
In fact, two major credit card issuers, Providian and First USA, have confessed that processing problems led to hundreds of thousands of customers being charged undeserved late fees in the last year. (The companies say the affected accounts have since been credited).
That said, many credit card issuers will remove a late charge if a good customer complains, particularly if other recent payments have been on time. That’s the level of customer service we should expect. If you’re getting less from your credit card company, consider switching to one that values its clients.
Liz Pulliam is a personal finance writer for The Times and a graduate of the certified financial planner training program at UC Irvine. She will answer questions submitted--or inspired--by readers on a variety of financial issues in this column. She regrets that she cannot respond personally to queries. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053. For past Money Talk questions and answers, visit The Times’ Web site at https://www.latimes.com/moneytalk.
