I was reading the book "The Intelligent Investor" with commentary by Jason Zweig, when I came across the following text in Chapter 6 (Pg 152):

Perhaps no stock personifies the pipe dream of getting rich from IPOs better than VA Linux. “LNUX THE NEXT MSFT,” exulted an early owner; “BUY NOW, AND RETIRE IN FIVE YEARS FROM NOW.” 10 On December 9, 1999, the stock was placed at an initial public offering price of $30. But demand for the shares was so ferocious that when NASDAQ opened that morning, none of the initial owners of VA Linux would let go of any shares until the price hit $299. The stock peaked at $320 and closed at $239.25, a gain of 697.5% in a single day. But that gain was earned by only a handful of institutional traders; individual investors were almost entirely frozen out.

My question is: How can the guys from VA Linux delay the launch to see an increase in the shares price of IPO if the IPO price is generally predetermined before the launch? Where am I going wrong? Can anyone help?

  • 1
    My reading is that they didn't delay the launch (NASDAQ had opened), but they delayed selling their shares until the price was high (but I don't know the details and can't check at the moment).
    – TripeHound
    Commented Jul 9, 2023 at 11:45

2 Answers 2


The initial price is determined a few days or a few weeks before the IPO date. There is an art and a science to setting the initial value. They want all the shares linked to the IPO to sell, they want the price to rise on throughout day 1, and normally they don't want to end of day price to be a ton higher than the initial price because that means the company left money on the table.

The exception was during the late 1990's. They wanted to be able to brag about the ending price. So even though the company wouldn't see that extra money they wanted to brag about it. During those last hours investment companies were jockeying to buy those initial shares, so they could sell them to their customers.

By the time regular people could buy the shares there was no room for regular people to make money on the shares. In this case the share price was inflated, and soon returned to earth.

There was a period of time before regular employees could sell their shares so they missed out on the gains.

Many of these IPOs were overpriced and made zero sense.


The "public" in the IPO (Initial Public Offering) is not retail investors, it's institutions. In the IPO process, the purchasers need to commit to large amounts of shares and the price is determined through a combination of factors, including how much these institutional investors are willing to pay.

Some brokers allow their customers to participate the IPOs by pooling resources and buying, as an investment bank, not only for themselves but also for their clients. Not every investment bank participates in every IPO, so you should inquire with yours how they can help you with a specific IPO you're interested in.

By the time the first day of trading starts, all the IPO shares have been purchased and distributed. The trading on the stock market is the secondary market (you're buying from another investor, not the company itself), and that's where the institutional investors that participated in the IPO are now selling the shares to the retail investors. Obviously, the institutional investors (some of them "market makers" for the company), priced their bids so that they'd make money when selling on the secondary market.

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