What is Investment Banking
Banking in general is the single most lucrative field into which an aspiring entrepreneur can enter. This field is also extremely volatile with a high risk of failure. This is especially true for investment bankers who have to seek out growing companies into which they can invest. Most bankers earn their fortunes by lending money to reputable borrowers, and charging interest on the loan. However, an investment banker like Jim Dondero makes his or her fortune by investing heavily into a fledgling company. Some of the bankers like Warren Buffet continue to let the company’s owners run the business as usual. These bankers recoup their investments by assuming a certain percentage of the company. Most of the times, the underwriters and investors will give an entrepreneur a sum of money to invest in the company, and agree to take a predetermined amount of stocks when the company goes public. This process is necessary to grow new companies, and many of the world’s largest companies wouldn’t exist without it.
Investment Bankers and IPO’s: Going Public
When it comes to good investment opportunities, Initial Public Offerings (IPO)’s are hard to top. An initial public offering refers to the amount that a company initially offers its shares. The value of these shares can double on their first day in some instances. This means an investor like James Dondero on highlandfunds who bought $1,000 is stocks the first day could see them increase to $2,000 by the closing bell. Best off, good underwriters will buy the stock themselves in order to keep the price from dropping below the initial offering. This is what happened in May of 2012, when Facebook’s stock dramatically underperformed. The stock’s primary underwriter was JP Morgan, and the banking giant was wise enough to bail out the IPO. JP Morgan and Goldman Sachs also began to buy the shares, splitting more than $176 million in IPO fees after the stock underperformed its first day.
Investment banking is vital to a capitalist society, because companies couldn’t grow without it. Wise investors can simply track successful investment bankers to see which companies they underwrite. These companies are usually destined for success, and even the Facebook stock eventually began to increase in value. Worst case scenario, he more reputable underwriters won’t allow their investments to drop below the initial offering and investors can break even.