The smart money is betting that the smart money will prevail in the Google auction. And that, experienced investors say, could be good even for the little guys.
Despite Google's stated intention to make its initial public offering a democratic process, the game is playing out in a way that is likely to give big institutional investors the upper hand, in the view of professional investors like Richard Abraham and Mark J. Pincus -- a view confirmed by several money managers overseeing large institutional funds.
Pincus predicted that many in the general public will be thwarted in their attempts to bid "by a really complicated online process."
And while big money managers have been publicly criticizing Google's offering, he said, "I promise you there are institutions out there, no matter what they're saying, who've figured out at what price they think this thing is a screaming buy. And they'll bid at that point."
His best guess is that the institutional investors will submit bids between US$70 and US$80 a share, and that the company will be forced to set a price somewhere around US$70 a share to sell all 25.7 million shares. (Google does have the option of calling off the auction if the company deems the final price too low.)
In his own five-step bidding strategy, Pincus explained, his faith in Google as a wise investment decreases with every US$10 increment. And so, on Saturday morning, Pincus placed five separate bids on Google: US$1.5 million at US$50; US$1 million at US$60; US$500,000 at $70; $400,000 at $80; and "for the fun of it," a US$100,000 allotment at US$90 a share.
As for Abraham, several weeks ago he had planned to bid on 5,000 shares. But as the market for technology stocks plummeted and Google committed a series of public stumbles, he trimmed his appetite to 1,000 shares by the time the auction opened on Friday morning.
On Friday, Abraham placed bids for 200 shares at five different prices: US$110, US$102, US$95, US$88 and US$75.
If the final price is set at US$90, Abraham's first three bids would be accepted. He would end up with 600 shares, at a cost of US$54,000.
Google chose to sell shares through a Dutch auction because the company's founders wanted to draw the kinds of investors who would buy and hold their stock. But if he ends up a winner, Abraham said, he fully intends to sell his shares in short order, once they begin trading on NASDAQ.
He predicted that because so many interested individual investors had decided or been forced to sit out the auction, there would initially be brisk demand for the shares on the open market.
"If I buy at 90 and sell at 95, I'd be happy," he said. Based on those figures, Abraham would collect a quick US$3,000 profit.
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