# The Thick & Creamy Velveeta Guide To IPOs (for noobs)

This post is sponsored by Velveeta. Call your local restaurants and tell them to add Velveeta to their menu.

Listen up kids.

An **IPO** is what happens the first time a company’s owners and top executive leaders tell its accountants and lawyers and stuff to talk to the stock exchange and team up with them to make a bunch of papers saying they’re gonna be on the stock exchange.

They set a day when they’ll be on the stock exchange and they say how many shares there will be of the company on the stock exchange. The people who already own the company will have a certain number of shares, if that’s not already the form of ownership they had before. A certain number of new pieces of paper will be printed, er excuse me, I meant to say a certain number of new bits will be flipped in computer memories, sorry, not that, I meant to say a certain number of new stocks will be issued to offer to the public for sale. These new shares are the *initial public offering* of shares, or **IPO**.

Analysts try to guess what the company is worth. The numbers they come up with are divided by the number of shares to come up with a price per share. Nobody gets any shares if nobody will pay whatever the company says their price per share is, and then the company gets no money for all these new imaginary pieces of paper either, so the company’s analysts will try to guess how much they can say the company is worth. Other analysts outside the company will try to guess that too, and other guesses, like what the price will be a week after the IPO is over.

A stock in its IPO is always valued and mainly looked at as a growth stock. The whole purpose of its existence is as a growth opportunity. To the company itself, the growth opportunity is the fat stack of cash they’ll be given for a bunch of imaginary pieces of paper. To investors, the growth opportunity is each of them maybe getting even bigger stacks of cash when they re-sell the imaginary pieces of paper later, or when the company starts sending money (called dividends) to everyone that has an imaginary piece of paper like “hey 😘 aren’t you glad you bought my pieces of paper 😉 might print more to sell soon idk tho…”

Since the IPO is the moment the company has chosen to use their one-time card of asking the public for as much money as they want *at whatever price they say* for a bunch of theoretical pieces of paper that buyers won’t ever even actually see proof of the physical existence of, it’s safe to say this is a pivotal stage of the company’s existence. Much of the time, it’s the crossroads between either going bankrupt, or becoming a household name big brand. Some companies have a group of rich-ass people and innovators behind them who have been working and spending billions of dollars for years just to create an impressive enough half a company to convince the public to give them enough money to finish building the other half. The goal is usually to have a business plan strong enough that it can grow exponentially, something that can make a big return on a small amount and then make even bigger returns investing that big return the next year, and then even bigger returns again the year after that.

*If* analysts think you might be able to repeat that cycle a few times before it levels out, then that means they think if you get a few billion dollars now, you might turn it into a position as one of the world’s biggest corporations making hundreds of billions of dollars in less then a decade.

**That attracts buzz and positive attention**.

*If* that is the goal, the company might not make much of a “profit” in terms of money for the owners to take home until it gets to that finished position years later, because even though it is making huge returns, it is re-investing those returns. The founders of a company might not want to stop re-investing their returns until the company is about as big as that reinvestment can possibly get it, ensuring they have the biggest stable income stream possible as soon as possible after that – like, if you own stores and every store can double its money every year, obviously you look forward to the day you can be taking home all the extra money from stores all over the country instead of all the extra money from stores in one city. (That example isn’t real.)

**That attracts critique and negative attention**.

This means by offering shares of ownership to the public, letting the public own a portion of the company, they are opening themselves up to extreme and varied disagreement between owners. Some companies spend their entire existence locked in a conflict between founders and insiders who give a shit about one set of goals and general public investors who also get a vote and give a shit about a whole other set of goals or sometimes just don’t even understand what’s going on. Other companies have management that’s better at investor relations and don’t give a shit about anything but investor relations so they don’t really stay in conflict with the public itself, but the public is still a bitch and they still have disagreements among the investors themselves.

These disagreements have driven the price of every publicly-traded stock in existence from whatever it was at the dawn of time to whatever it is today. You can trace the price chart of any stock back to its IPO along the exact lines of people’s opinions on how much money the company can make in the long run, and how much *of that*money the company actually *will* make in the long run. The more dollars people waged on an opinion, the stronger the opinion among investors.

Some examples of those **opinions**:

* Someone might buy thousands of dollars in puts right after an IPO, betting thousands the price will go down, because they think even if the company CAN grow within a few years into an industry leader while taking modest profits along the way, they don’t like the company, and they don’t think it WILL do the best it can do, so they’re siding against the people who bet it will do well.
* Some people sell thousands of dollars in shares in a well established company because a vote didn’t go the way they wanted it to and they think the executives and the other shareholders must all be retarded and they should get out while the company is doing well before an iceberg comes along.
* Some people buy thousands of dollars in calls in a company they DON’T believe can POSSIBLY EVER make a single dollar in profit, because Elon Musk runs it and they think it WILL somehow magically do better than the best it mathematically can even do, so they’re siding against the people who bet it’s a retarded idea by a sleeping med addict with a speech impediment.
* Some people throw thousands of dollars into bonfires, because they know for a fact a given company is about to go out of business, but yolo, the market is irrational.
* Smart money throws big dollars into a company when they believe it can AND will grow into a profitable behemoth. (When smart money also happens to be big money, they can even do this for a discount when the idea is first trying to get off the ground years before the IPO to be extra smart extra big money.)

*What will happen to the company* in the **long term** depends mainly on which of these opinions are **correct**.

*What will happen to the share value* in the **short term** depends mainly on which of these opinions are **cash money**.

To determine which opinions are and aren’t “cash money” is the great challenge we have all undertaken as gamblers. I don’t care how much of your money is in a safe diversified portfolio, every single person here has their own version of a yolo trade that they make sometimes. An opinion can be cash money just because it’s popular, but not if big money foos disagree with the word in the street. An opinion can be cash money just because the big money foos believe it, but there’s always a bigger fish and sometimes Trump tweets a tweet. There’s no surefire way of measuring the cash moneyness of an opinion, but you can try to sense it just by listening to the opinions that are out there at a given time and comparing who holds those opinions and why, which is why we all love reading retarded fanfic about overpriced companies before we buy faggy d’s and it’s also why that somehow works for some of us even though we know it’s idiotic.

The **prices of shares and options contracts** are always dollar measurements of the opinions like these that trigger the actions like these which set the prices.

Normally share price is a function of how many people want to buy, how many people want to sell, and what prices they seem to be willing to buy and sell for. Most of the time there are just constant incremental changes from people making incidental decisions like cashing in on gains adding to the volume on the side of sellers, or firms moving carefully to avoid revealing too much of their thinking, adding little bits of volume at a time on the buyer or seller side of a stock they’ve decided a direction to trade on. Bigger changes in price happen when news breaks that’s big enough to lead to a huge imbalance between how many people want to buy and how many people want to sell, leading to people more and more drastically changing the prices they’re willing to execute at in desperation to make their orders execute as fast as possible before prices move even further.

It gets like that shortly after an IPO, but on IPO day, it doesn’t work the normal way, because the volume on the seller side is pre-determined, as is their price, because there’s only one seller and they have to announce these things. This lets a company decide their initial valuation, whether that will last a day and then collapse or grow onward toward infinity.

*There is a spectrum of 2 ways for companies to determine this price*.

1. **The Pump and Dump**: A company can aim for the highest initial valuation possible, focusing their analysis on how much they can stretch out of the perceptions of whichever market segment will pay the most. The idea is to say you’re worth an amount of money that will generate buzz and be believable to as many investors as possible the day before, regardless of what amount your market cap will actually be after the dust settles.

* This caps the company’s claimed valuation at the highest amount they’re confident they can sell initially. The only limit is your imagination. Sorry, meant to type mob mentality. The only limit is mob mentality. Try to use mob mentality to convince a lot of people to imagine fantasies where your company is worth a trillion dollars someday with zero dilution.
* This benefits the company by letting them get the biggest instant cash pile possible out of their IPO.
* This hinders the company by pissing off investors, being sketchy all-around, and leading to severe volatility and price decay afterward. Being very overvalued at the pump and losing a lot of people a lot of money in the correction can cause it to overcorrect and leave you very undervalued for a very long time just because if you could nosedive so hard in the past, it seems like you could nosedive again in the future, whether that’s the past few minutes and future few minutes on the day of the price collapse, or the past few years and future few years of a later day when that price collapse is just history for investors to look at.
* From an executive standpoint, this strategy fits if you can get a lot of long-term profit out of immediate capital right now, because you are sacrificing a lot of ability to raise capital for a long while into the future for as much as possible right now.
* From an investor’s standpoint, this is blood in the water that signals a frenzy of options trading, sometimes easy to make money in, sometimes not, due to oversaturation and chaos. Everyone thinks they know what it’s going to do, but the groupthink just makes everyone shoot each other in the foot driving each other’s predictions off the needle on exactly when and where the peak and the dip will be.
* The price will usually moon immediately after the IPO because the optimal selling price is usually one that has some room to be driven upward by buzz, instead of starting to decay right out of the gate and triggering panic selling that profusely bleeds off demand. Once the biggest insiders think peak demand and peak price has been hit, they’ll dump, and shortly thereafter the price will rock-sink to near zero due to panic and then stay near zero due to lack of confidence, regardless of what the company is actually worth. Some see this as a dick move for how much money a lot of people lose on it, but for one thing that’s fuckin dumb you might as well just give away all your money if you think that way (and I say that as an ethical investor who only supports good companies). More importantly though, it’s not even selfish, it’s executives taking on hella personal risk dedicating their lives to betting everything on their companies and the projects the companies work on. It creates a generously long discount buy-in opportunity for people who believe in the company and are smart enough to see its long-term value despite the short-term uncertainty of others, i.e. value investors. The people who lose money can always ride it back to the top if it was ever a good bet, just like the value investors can from the discount stage, the difference is just the value investors are lucky the discount stage exists because it’s the only way for regular average joe members of the public to buy the company at prices discounted by uncertainty.
* If the company succeeds in the long run, it will grow to eventually break even with its IPO price years later and then surpass its peak, because that IPO price was only overvalued due to the perceived risk of long-term failure at the pivotal growth stage an IPO happens at. Equities are like the opposite of options this way, instead of getting theta decay they get value added with every additional year that they can prove they haven’t gone bankrupt yet. This is why, if you get morally outraged at a pump and dump, tHe SyStEm doesn’t really give a shit.
* If the company fails in the long run, a lot of investors are as fucked as possible by the choice to pump and dump, but some of the insiders from the pre-IPO stage walked away with a lot of money from those investors. Sometimes this is because it was a pyramid scheme all along, which is what the people who lost money will say is the case even if it’s not.

1. **The Nerd Way**: A company can aim for a realistic initial valuation, focusing their analysis on what the responses to their IPO will be and what’s likely to happen to their stock price in its first week, and only stretching the price a minimal amount to avoid risking too volatile of reactions.

* This caps the company’s claimed valuation at whatever their analysts say won’t cause a panicked overcorrection as soon as the buzz dies down. Try not to do anything that will generate more buzz than necessary, and really try not to cause any panic. If you can, set the price to exactly where the only doomsayers will be people who like to look fucking dumb, for the optimal safe little boost.
* This benefits the company by exuding confidence and competence, telling investors “you can trust our valuation instead of hater analysts because we called our shot, made it, and turned out correct instead of fucking you over with a super-stretched pump and dump.”
* This hinders the company by passing up a lot of cash that they could have gotten instantly for free all up-front as early as possible. If the insiders at the company aren’t also insiders with the oligarchy, then this also hinders them by keeping the narrative of their success in the hands of analysts. (The price volatility of a pump-and-dump can usually make analysts look just as dumb as you look, while you walk away with billions of dollars, which is very useful if you know media mouthpieces will be against you later because you already made their analysts look dumb. I personally think this is often the secret reason the pump-and-dump style is chosen for an IPO)
* From an executive standpoint, this is good if you don’t need short-term capital too badly, or if there are diminishing returns to early capital with your particular business plan, or whenever there’s any reason it’s worth it to pass up a few billion free dollars today in exchange for a higher chance of more billions of free dollars in a few years.
* From an investor’s standpoint, this is the serene, peaceful field of money bulls live for, and a really weird time for options traders who all just wanted to see the simplest pump and dump possible.
* The price will usually only fluctuate a bit after the IPO, doing a much less extreme version of the rising and falling pattern seen in a pump-and-dump. The peak it rises to and the floor it settles to aren’t far from the IPO. While this means pretty much everyone makes decent gains on it and nobody has to lose a lot of money, it also means there’s never a special discount buy-in period for people who really believe in the company to get rich off of like a pump and dump offers after the dump.
* If the company succeeds in the long run, it will beat its IPO price and post-IPO peak pretty quickly and keep going up pretty consistently, always being a good idea to hold from the time of buy-in and only sell when you need the money.
* If the company fails in the long run, insiders are probably going down with the ship while as many public investors as possible get out on life boats. The philosophy of gradual movement can help ensure an ultimate decline is gradual as well.

These two options are the opposite ends of a spectrum, with Uber representing the dial all the way to the pump-and-dump side and literally nothing in the modern day representing the dial all the way to the nerd side.

**How to use all this info to profit on IPOs**:

Listen to the opinions leading up to the IPO and try to determine which of these opinions are cash money.

I suggest asking yourself if your own opinions on a given company feel very cash money before you act. For example, if your gut tells you exactly where a company is going to have its peak amount of buzz/demand and you’re a lot more confident in your estimate of the peak price than usual, maybe your opinions are particularly cash money that day. If you can understand exactly what everyone else is going to do, and why, and you can tell whether big money, lil money, and smart money are in alignment with each other, and why, your opinions that day are probably cash money as fuck. If you’re about to buy OTM calls with a super high premium because you heard a bunch of other people are doing it and you didn’t even consider whether there might be overinflated demand, that’s not very cash money of you and you will not be going to space today. It’s probably best not to put any money in something as volatile as an IPO if you’re not having some of your most cash money opinions of the whole year.

At the very least, keep in mind that the options market *will* be overinflated as fuck from the sheer amounts of attention, and while that inflation might stay at scale letting you get overinflated gains despite buying at overinflated prices, that requires either a bit of luck or *very* cash money methodology. If both forsake you, your options will go to 0.

And in the words of Warren Buffet, “**buy companies you like**.” You can sleep through the panic crash of a dump phase and still end up beating the S&P before you know it just waiting for your losses to turn green again, if the company is solid and the people at the steering wheel had really fucking good reason to make the sacrifice play. You can have the most elite methodology and all the cash money opinions *except one* and lose all your money if that one cash money opinion is “this company is dank as fuck” and you’re out here hating on the company for reasons that seem solid but turn out wrong. That can’t really happen in reverse, at least in my eyes – if the company sucks and you understand everything about it deeply *except* that it sucks, you’ll probably still be fine because it already made it to the IPO stage without everyone noticing that it sucks too much to exist so apparently life is going easy on it. Betting against companies you dislike is fun, especially when it works, but that’s not good advice, you’re really better off betting on the sheer inevitability of strong business models succeeding than you are betting on whether the market will be rational or irrational tomorrow.

**TL;DR** \- Short Uber or long Uber or don’t play Uber. Fuck it, buy iron condors on Uber, there’s always a chance. If you can’t afford mac and cheese as an options trader, drive for Uber until you have enough money to hail an Uber to the grocery store and buy some Velveeta. Again, please call every place you eat at and ask them to start serving Velveeta. Like just for example, KFC could have Velveeta for their mac and cheese, just imagine it? I bet they’d get a great deal right now so the economics of it would work out great. I always thought Pikachu was made of Velveeta but the level of CGI in the new live action movie proves otherwise. If you don’t eat some Velveeta I’m going to hack your trading account and find some way to order a pallet of Velveeta to your house on margin, and I’m not saying that as a threat, it literally can’t go tits up. Liquid Gold.