week 6 - sorry, no interesting titles

To me, the most interesting read of the whole class was the the one on Googlenomics.  Understanding the bidding process at Google seems to be the most important aspect of Google.  As a securities analyst I watched the IPO giggling thinking that these guys were pushing the envelope.  Don't get me wrong, I am not a huge fan of the IPO process, the banking industry and certain members of it's fraternity that seem to get away with and control most of the best deals.  But, I also espoused at least to some degree that there was a level of them knowing what they are doing that made this a necessity.  However, witnessing the debacle that was Facebook's IPO and then understanding that Google managed their own in their own way, you start to really have an appreciation for what it is they do.  

I think the most interesting aspect and what makes it work is that there is a continuous bidding process.  On top of that, you have the way in which the actual price is determined such that you pay a penny more than the bid lower than you.  This is masterful.  Having been stung in a dutch auction for a stock I can appreciate this method.  We bid a price and initially were told we had been selected to sell our stock back to the company.  GREAT!!! However, there was a mistake in the calculation and we didn't get to sell any of our stock.  The stock went on a slide that ended down somewhere greater than 90 percent lower than we had thought we had agreed to sell our stock at.  This was a frustrating experiment for our team that shed so much light on bidding processes, game theory etc...  More recently we did much better buying stock in a company that was trading well below the upper end of their dutch auction range.  All that to say, this topic is so interesting as a continuous bidding process would alleviate so much inefficiency in just about every market. As I mentioned last week I was bidding on a great property and waiting to hear what they bank would do.  They have rejected both of our offers.  I would be willing to go a little higher, but they don't seem to want to budge on their price.  I have analyzed the property every which way I can, and I just don't think the bank has reasonable data on the market here.  They are counting on value from property that may never be realized due to local laws.  If there were more bidders, the bank would have better data to make a decision.  Right now it's just me.      

The most interesting part was that using the second bid and adding a penny actually drove up the offers.  This makes sense because it takes fear out of the equation.  The bottom line is you bid what you think and get a reasonable price.  If you are high, your penalty is only one penny!  Reducing that penalty literally changes the game!