IPO

During a casual conversation, Vivian asked for my opinion on a particular stock.

"It seems to be an excellent business, the dividend pay off is good, and is recommended by that famous analyst." My wife said.

"Maybe you're right," I replied, "But I'm an obsessive follower of Benjamin Graham and would not buy any stock that is on the market for less than two years."

"That's why you'd never care for any IPO?" My wife went on.

(For those who are not familiar with the stock market, IPO stands for Initial Public Offering.)

"Exactly," I said with a grin, "And, if the company is making a lot of money, who in his right mind would allow his own company listed in the stock market? Even if it has been listed, the owner should really privatize it!"

"But, there are good companies that need money for expansion." My wife pointed out.

"True, but it would often take a few years before an outsider - I mean small investor - to know exactly where had the money gone. I would rather wait for two or three years."

PS. In the jargon of game theorist, the situation is a classical example of trading with asymmetrical information.