Pennies on the Dollar

Consider from the Wall Street Journal:

“At issue are the ways some Wall Street firms allegedly profited by inflating the prices paid by individual investors for stocks after IPOs were launched, exacerbating losses when the bubble burst. The alleged misconduct includes “laddering,” or steering more shares of hot IPOs to investors who signaled plans to buy more shares at higher prices after trading began. This had the effect of increasing their first-day price gains while worsening losses of investors who bought later in the open market. Plaintiffs’ lawyers have estimated investors lost a total of as much as $55 billion from the alleged misconduct related to the IPOs, but say recoveries will likely be well short of that amount. Plaintiffs’ lawyers could get up to one-third of the $1 billion guarantee — if that is the only amount recovered. Requests for compensation from the ultimate recoveries need court approval.”

If illegal activity took place than damages are due. But given the fact that only pennies on the dollar will be recovered, is there a better way to handle it next time? Yes, consider:

1. Don’t use brokers for stock tips.
2. If you are long ‘some’ stock and it is headed to the moon, know your exit plan. For example, GOOG and CME might be great trends now, but you need an exit plan.

Don’t want to do this? Then get ready for the next fleecing sure to come at some future time! And remember, there was for the vast majority of internet stocks…time to exit. The time to exit is always clear if you are following the “price”, but fuzzy if you are following “fundamentals”.