A Small Investor's Guide to Participating in the Twitter IPO

For small investors, the prospect of participating in a high-profile Initial Public Offering (IPO) like Twitter's can seem challenging. The traditional path seems daunting, but for those willing to navigate the complexities, a piece of the pie is achievable. This article explores the strategies and hurdles small investors may face and how to overcome them.

Understanding the Underwriting Syndicate

The road to allocating a piece of an IPO like Twitter's typically involves the underwriting syndicate, which includes major investment banks such as Morgan Stanley and Merrill Lynch. These banks have significant retail networks, meaning that if you have an account with any of these firms, you can ask your wealth manager for an allocation in the Twitter IPO. However, achieving this is not guaranteed and comes with its own set of challenges.

The Role of Fees and Customer Loyalty

The primary determinants of IPO allocations are customer loyalty and the generation of fees. The best customers for a bank are those who generate the most fees recently. This could be through regular trading, managing wealth, or engaging in alternative investments. If you generate substantial fees for one of the underwriting banks, you may receive preferential treatment in the IPO allocation process.

Building the Case

If you are a small investor looking to secure a piece of the Twitter IPO, your first step should be to reach out to your wealth manager. Highlight the significant fees you generate for the bank. Be prepared to back up your claims with data. If your request is denied, you may need to take a more aggressive approach by threatening to take your business elsewhere. However, it's crucial to approach this tactically. Overly aggressive tactics could backfire.

Alternative Investments and Speculation

Some small investors find success by temporarily shifting to alternative investments, such as day trading, while generating substantial fees for the underwriting firms. This strategy works because it demonstrates a short-term, high-fee engagement with the bank. However, it's important to be realistic and sustainable. Rapid losses in trading can quickly turn a small investor into a high-risk client, which may not be ideal.

Strategic Patience and Realism

While pursuing an IPO allocation is a worthwhile endeavor, small investors should approach it with realistic expectations. It's not uncommon for even well-connected clients to receive zero stock in a hot IPO. This is because the allocation process prioritizes high-value, high-fee customers. For most small investors, the best strategy might be to wait and observe the market until a more favorable opportunity arises.

Responsible Considerations

It's essential to approach the IPO allocation process responsibly. The tactics mentioned here should be viewed as extreme measures rather than standard practice. Small investors should focus on long-term wealth management and avoid short-term speculative behavior that can risk their financial health. Engaging in unethical or sustainable practices can have long-lasting negative effects on your relationship with your financial advisor and the bank.

Conclusion

Participating in the Twitter IPO as a small investor requires a nuanced understanding of the market, a strategic approach to generating fees, and a bit of luck. However, it is possible with the right tactics. By building a strong relationship with your wealth manager and demonstrating significant fee-generating activity, you increase your chances of receiving an allocation. Always approach such endeavors with caution and consider the long-term implications.

Disclaimer: This article is not a guarantee of success and is not financial advice. All investors should conduct their own research and seek professional advice before making any investment decisions.