Thought of the Week

1. This commentary is not intended as investment advice or an investment recommendation. It is solely the opinion or our investment managers
at the time of writing. Nothing in the commentary should be construed as a solicitation to buy or sell securities. Past performance is no
indication of future performance. Liquid securities, such as those held within DIAS portfolios, can fall in value. Global Financial Private
Capital is an SEC Registered Investment Adviser. All charts courtesy of Bloomberg.
Thought for the Week (273):
Tweeter vs. Twitter
Synopsis
 Tweeter Home Entertainment saw its stock price surge last Friday as demand for the stock of this bankrupt company increased seven-fold.
 Twitter’s initial public offering (IPO) is the most anticipated IPO of 2013, and last Thursday they filed the necessary paperwork to begin the process of selling their shares to the public.
 IPOs are exciting, and the opportunity to get on the ground floor in the next Google is very appealing to any investor, however the risk of an IPO is too high for DIAS portfolios.
Tweeter Home Entertainment
Tweeter Home Entertainment is a defunct Massachusetts-based electronics retailer that filed for bankruptcy in 2008 and shut its stores later that year. Despite being out of business, Tweeter’s stock surged on October 2, as more than 14.3 million shares (still less than $1 million in total value) were traded. The chart below shows the frenzy of activity last week in Tweeter’s stock.
How could any stock for a company in bankruptcy for the last five years with stores closed see so much activity in their stock price? To answer this question, let’s rewind the clock back 24 hours to the day where one of the most hotly anticipated events of the year finally happened.
On October 1, Twitter made its initial public offering (IPO) filing public, which is by far the most anxiously awaited IPO of 2013. The excitement from the messaging service selling shares to the public has created media frenzy as investors await the opportunity to buy shares in the next hot internet IPO.
Well Twitter announced in their S1, a document filed with the Securities and Exchange Commission (SEC), that their stock ticker will be “TWTR”. At that that time, Tweeter’s ticker was “TWTRQ” (the “Q”

2. This commentary is not intended as investment advice or an investment recommendation. It is solely the opinion or our investment managers
at the time of writing. Nothing in the commentary should be construed as a solicitation to buy or sell securities. Past performance is no
indication of future performance. Liquid securities, such as those held within DIAS portfolios, can fall in value. Global Financial Private
Capital is an SEC Registered Investment Adviser. All charts courtesy of Bloomberg.
designates that the company is in bankruptcy), and traders got confused and thought that Twitter had already started to sell shares one day after filing with the SEC. By the time the financial industry’s regulatory arm, FINRA, halted trading, the shares were up nearly 700%!
The confusion was lifted on Tuesday this week when Tweeter resumed trading under the symbol “THEGQ”. One lesson to be learned here is that markets are often irrational for short periods of time.
Caveat Emptor
However, a more important lesson to be learned is that IPOs are extremely risky and particularly those that receive media attention. In fact, our Investment Committee has a belief that the more hype surrounding an IPO, the more risk one presents investors.
The actions surrounding Tweeter’s stock last week is a prime example. Granted the number of investors who actually traded Tweeter’s stock was relatively small, the activity in the stock was truly astonishing for three key reasons:
1. Timing Was Way Off: Typically we don’t see shares actually sold to the public for three weeks after filing the S1, as the company conducts a road show to advertise to potential investors.
2. The Price Wasn’t Right: The share price is still unknown which indicates that market participants were willing to buy with no regard to valuation.
3. It Wasn’t Even the Same Symbol: The stock symbols did not even match up exactly, but market participants still traded feverishly in a stock priced less than $0.10, which is irrationally low for a newly released IPO.
We strongly urge investors to understand the risks of any IPO because for every success story like Google or Chipotle, there’s a botched IPO like Facebook or Groupon. Often times these stocks trade highly irrationally for the first few weeks/months, and an investor getting in early must be willing to endure the volatility caused by forces like insider selling, short-term profit taking, etc.
The bottom line is that although IPOs sound exciting and most investors would love to brag about how they got in early on the next Google, we feel that they represent too much risk in our DIAS portfolios and steer clear until the dust settles and fundamentals begin to drive the stock.