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Snowflake's IPO Highlights Wealth Privilege


September 16, 2020 was a historic day on Wall Street. Snowflake (SNOW) made history as the biggest IPO to date. As investors from all economic backgrounds scrambled to get in on the Snowflake craze, it was, more than likely, the wealthy investors that were able to get in at the $110.00 "discount" IPO price. All other investors paid the premium, which was as high as $300.00 per share.

For me, Snowflake's historic IPO debut was not the big story. The bigger story is the privilege that wealthy people enjoy in capitalism. To illustrate this point, let me tell you a little story.

Most investors do not realize that the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ) are the secondary market for trading securities such as stocks. This is because when you get shares via the NYSE or the NASDAQ, people are getting their shares from individual investors that got their shares directly from the company. The primary market is when individuals acquire shares directly from the corporation or owner of the entity. Venture Capitalists (VC) usually get their shares in the primary market. The show "Shark Tank" would be a primary example of primary market acquisitions. A business owner gives the "sharks" a percentage stake in their business for a specified dollar amount. At this point, the company is usually private, but if the firm were to go public, then the VC's percentage stake would be translated into "shares". If a VC had a 15 percent ownership in the firm and the firm went public - offering 1,000,000 shares - then the VC's ownership stake would be translated into roughly 150,000 shares. Dilution of ownership is possible, but that is another conversation. Similarly, employees of corporations can get their shares in the primary market. For example, executives are, oftentimes, given shares from the business entity as part of their compensation package. This is another example of acquiring shares of stock in the primary market. Once an individual decides to sell their shares of stock, they usually do so through the secondary market. They offer their shares for sale through a brokerage account and the shares are bought by investors in the secondary market - NASDAQ or NYSE - by individuals looking to acquire an ownership stake in the company.

On or around August 5, 2020, BigCommerce (BIGC) debuted on the stock market. Originally, the IPO price was set to be around $18-$21 per share. The hype around the stock, and transactions within the "primary" market, raised the IPO price to $21-$24 per share a day or so before trading in the secondary markets (NYSE and NASDAQ) began. On the IPO trading day, which I believe was August 5, 2020, I executed a buy order. I set my limit price (the max price I wished to pay) for BigCommerce stock at $27 as I foresaw the price rising again before trading started. However, by the time the stock finally hit the "secondary" market (specifically NASDAQ), it was trading at $60 per share, which was nearly 300% higher than its intended price.

Fast-forward to September 9, 2020. I received an email from my brokerage firm alerting me that Snowflake will be publicly traded on September 16, 2020. Originally, Snowflake's IPO price range was set at $75-$85 per share; however, the hype and frenzy, once again, pushed the target price up to $100-$110 per share. My brokerage firm was alerting all interested investors that wanted in at the IPO price to contact them to get in on the IPO, if interested. Knowing that Snowflake was going to be a huge IPO, I called my broker. But, to my surprise, I did not qualify to participate in the IPO price. Although I had enrolled to receive email alerts from my broker on new offerings, I did not meet the criteria to participate. In order to participate in the IPO offering, you had to have at least $500,000 in your brokerage account. So, I had to wait until actual trading started in order to acquire shares in Snowflake.

And, the rest of the story is history. I kept refreshing my brokerage interface every 30 seconds until SNOW started trading, which was roughly after 1 PM EST. By the time it became available to the rest of us "investors", the bid price was up to $240 or $241 per share. At that price, it was too expensive for my blood. Could I afford to buy shares in SNOW? Yes. Was I going to pay $241 per share for an IPO that was way overpriced, especially knowing that others bought in at $140? Hell no!

The investors that were able to get in at the approximate $115 price saw a 200% gain on day 1. The stock rose as high as $300, but closed at $253. So, those poor, unfortunate, souls that paid higher than $253 are already in the hole. And, in my opinion, once the euphoria wears off around SNOW, the stock price will come back down to a terrestrial level - somewhere near $130, and those late investors will have to play this stock for the long-term in order to realize any gains.

By no means am I a hater. The system is what it is, and the rich get to enjoy many privileges and preferential treatment that the rest of the common folk do not. In fact, the reason why I invest and "hustle" is so that I can one day make it into the financially-affluent ecosphere and enjoy said privileges myself. I just wanted to highlight how the system works so that individuals can approach the system from a more realistic point of view. By being pragmatic about how the system works, proper levels of expectation, and proper levels of patience, can be adopted; thus, increasing the likelihood that "common folk investors" do not become disillusioned with the system.




 
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