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The Carnival of Speculation

An excerpt from Devil Take the Hindmost: A History of Financial Speculation (1999), by Edward Chancellor. He writes: "According to modern economic theory -- which holds that markets are efficient, i.e., that share prices reflect intrinsic values and that speculators are simply rational economic agents intent on optimising their wealth -- the history of speculation is a dull affair. In the world of efficient markets there are no animal spirits, no crowd instincts, no emotions of greed or fear, no trend-following speculators, and no 'irrational' speculative bubbles. Yet the activities of speculators down the ages appear to me to be richer, more diverse in motivation and extraordinary in result, than anything described by economists."

Irrational Exuberance

An excerpt from the preface and first chapter of Irrational Exuberance, by Yale economist Robert Shiller. Its publication in March 2000 coincided with the peak of the Nasdaq index. Shiller writes: "The extraordinary recent levels of U.S. stock prices, and associated expectations that these levels will be sustained or surpassed in the near future, present some important questions. ... We need to know confidently whether the increase that brought us here is indeed a 'speculative bubble' -- an unsustainable increase in prices brought on by investors' buying behavior rather than by genuine, fundamental information about value. In short, we need to know if the value investors have imputed to the market is not really there, so that we can readjust our planning and thinking."

Securities and Exchange Commission (SEC)

The website for the Securities and Exchange Commission has numerous areas of interest for individual investors. It contains a free searchable database (called EDGAR) of all corporate registrations, filing statements, and other documents. It also has sections containing SEC regulatory actions, enforcement actions, and staff accounting and legal bulletins.

NASD Regulation

Maintained by the regulatory arm of the National Association of Securities Dealers (NASD), the site allows individuals to research a broker or brokerage firm. It also contains investor alerts that warn of fraudulent schemes and other bad investment practices, as well as a section that offers investors guidance on margin accounts.

speeches by arthur levitt
Plain Talk About On-Line Investing

In a May 1999 speech at the National Press Club, Arthur Levitt, then chairman of the SEC, spoke about investors' responsibilities when investing over the Internet, online brokerages' responsibilities to their customers, and how the SEC was responding to protect investors and help maintain the integrity of the markets.

Quality Information: The Lifeblood of Our Markets

In this October 1999 speech at the Economic Club of New York, Arthur Levitt spoke of the need for "total commitment to quality financial reporting," which he defined as "a commitment to integrity and transparency in the way we do business; in the way we execute and report trades; in the way companies report their financial performance; in the way analysts communicate with companies and investors; and in the way auditors fulfill their mandate for independent and objective oversight."

Remarks at The Finance Conference 2000: "The New Economy"

In a speech at Boston College in March 2000, Arthur Levitt urged investors to maintain perspective in the midst of rapid technological change and heady market optimism. "The retail investor," he said, "is driving the marketplace. But that's only half of the equation. What is driving today's investors? What are we to make of some of the investing trends and developments today -- the surge of day traders, growing margin accounts, the rush to buy IPOs? ... In many respects, a culture of gamesmanship has taken root in the financial community making it difficult to tell salesmanship from honest advice."

investigation & litigation
SEC Charges CSFB with Abusive IPO Allocation Practices

This press release from the Securities and Exchange Commission, on Jan. 22, 2002, announced that Credit Suisse First Boston (CSFB) will pay $100 million to resolve the SEC's charges of IPO abuses, and stated that "CSFB also agreed to be enjoined from future violations and to institute wide-ranging new procedures designed to prevent a recurrence of the sort of misconduct that gave rise to this action." You can also read the text of the SEC's enforcement action, its complaint against CSFB, and its final judgment in the matter.

The IPO Controversy

"While regulators have focused primarily on alleged improprieties within the investment banking practices at Credit Suisse First Boston, it is far more likely that the pattern of IPO-related abuses was systemic in nature." The tech news site offers a collection of articles that look at "the primary motivations (and possible transgressions) of the major participants in the IPO controversy -- underwriters, equity research analysts, brokers, institutional investors, technology companies, retail investors and regulators."

Securities Class Action Clearinghouse

This public database provided by Stanford Law School "provides detailed information relating to the prosecution, defense, and settlement of federal class action securities fraud litigation." In addition, it offers research reports and analyses of how federal class action securities fraud litigation has evolved since the passage of the Private Securities Litigation Reform Act of 1995.

The Trouble With Frank

"Frank Quattrone was the top investment banker in Silicon Valley. Now his firm is exhibit A in a probe of shady IPO deals." (Fortune, Sept. 3, 2001).

Days of Reckoning

"In the wake of the tech wipeout, the bankers who profited most are facing the fury of investors, politicians and regulators." (The Industry Standard, Aug. 20, 2001)

SEC: Analyzing Analysts Recommendations

This SEC publication discusses the potential conflicts of interest faced by analysts and provides tips for researching investments. The SEC warns, "As a general matter, investors should not rely solely on an analyst's recommendation when deciding whether to buy, hold, or sell a stock. Instead, they should also do their own research -- such as reading the prospectus for new companies or for public companies, the quarterly and annual reports filed with the SEC -- to confirm whether a particular investment is appropriate for them in light of their individual financial circumstances."

Analyzing the Analysts

On June 14, 2001, the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises held hearings titled "Analyzing the Analysts: Are Investors Getting Unbiased Research from Wall Street?" The House website contains the testimony of experts including analysts, regulators, and journalists. Click here for part two of the hearings, held on July 31, 2001.

Where Mary Meeker Went Wrong

"She may be the greatest dealmaker around. Problem is, she's supposed to be an analyst." (Fortune, May 14, 2001)

venture capital
Fallen Idols

"High-profile and respected VCs couldn't resist the Internet bubble. Now many are paying the price with troubled funds." (The Industry Standard, May 21, 2001)

Adventures in Venture Capital

This special report from The Motley Fool explains how venture capitalists operate. It discusses the downside of funding a company through venture capitalism -- namely the loss of control for the company's founders, and perhaps increased pressure for the company to go public.

The ABCs of IPOs

This four-part series from Hoover's Online includes a glossary of terms commonly used in the IPO market, as well as pointers on how to read a prospectus. Hoover's IPO Central also maintains up-to-date information on current IPO pricings and filings.

Money 101: Investing in IPOs

This series from the editors of CNN and Money magazine is geared toward investors interested in the IPO market. Its list of "Top Ten Things to Know" provides useful information on researching IPOs, as well as practical tips on how to broach the subject with your broker.

SEC Filings and Forms (EDGAR)

The SEC requires all public companies (except foreign companies and companies with less than $10 million in assets and 500 shareholders) to file registration statements, periodic reports, and other forms electronically through EDGAR. Anyone can access and download this information for free. Here you'll find links to a complete list of filings available through EDGAR and instructions for searching the EDGAR database.

The IPO Tease

This 1998 Red Herring article by Stephanie T. Gates analyzes individual investors' opportunities to invest in IPOs through online brokerages and the "Dutch auction" IPO process advocated by Bill Hambrecht. It concludes that although the Internet has the potential to democratize the process, many barriers still exist for the average retail investor.

Pop Goes the IPO

In February 2001, analyzed the 20 best-performing IPOs of the 1990s and found that while all the stocks had hugely appreciated, not one could be found on the list of top 20 one-day pops during the same period.

The Great Internet IPO Scam: Money Left on the Table

"The chief financial officers of Internet companies simply don't want to talk about it. It's called 'money on the table' -- the difference between the initial price of an Internet IPO and the price that's set by the open market on the first day of trading." (UPSIDE, June 24, 1999)

Initial Public Offerings (*pdf)

In the 1990s, thousands of firms went public around the world. This article surveys the market for IPOs. The process of going public is discussed, with particular emphasis on how contractual mechanisms deal with potential conflicts of interest. The valuation of IPOs, bookbuilding, price stabilization, and the costs of going public are also discussed. Three empirical patterns are documented and analyzed: short-run underpricing, hot issue markets and long-run underperformance. (Contemporary Finance Digest, Spring 1998)

for investors
NASD: Learning to Invest

A helpful site for inexperienced investors, it contains online brochures to help individuals analyze their financial goals and investment choices. There are also brochures that provide an introduction to investment strategies, and how to set up an account.

SEC Investor Information

This SEC site provides a variety of services to address the problems and questions faced by investors. It has a number of interactive tools to help investors, including a quiz to "Test Your Money Smarts," a Social Security retirement planner, and a mutual fund cost calculator.

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