Decoding the Wall Street Journal: Decoding the Front Page of a Prospectus

Ahh yes, the prospectus. No doubt about it, if you picked up the WSJ, the term prospectus would be all over the place in discussing Facebook. But, in order for Facebook to do an IPO, the company that is yearning to rake in money from people has to issue a prospectus to inquisitive investors. Prospectus is one of those words that everyone on Wall Street takes for granted in thinking the entire world knows the definition. Yet, the good majority of Wall Street has never laid eyes on a prospectus, they rely on analysts to give them the major bullet points. If this bright bunch of people who get paid to make money for clients have never seen or read a prospectus, how on God’s green earth does the average investor know the ins and outs? To them, it sounds like a document that allows them to prospect for gold on some remote land in Canada.

Bookmark this note as “Prospectus” for future reference. The look of a prospectus isn’t changing anytime soon, and at least you could say you have cool words in the arsenal to be unleashed if pressed on the subject.

Prospectus Toolbox

• Red writing on the page: Almost like the fine print on that used car sales ticket. For our cool club at Decoding the Wall Street Journal, remember that the red writing unlocks another word for prospectus, “red herring.”
• Large number at top of document: The number of shares the newbie company is presenting to investors to buy.
• Class A common stock: Simplest stock to buy and understand, but last in line to receive money should a company go bankrupt.
• Risk factors: Part of the prospectus that details events that could cause a company’s financials to go down the drain.
• First bank name on bottom of document: The top name equals the top dog in managing the IPO process (sound smart: the company is the “lead bookrunner”).
• All four banking names on the bottom: Sound smart by calling this the “syndicate”, or the group of banks that help in the IPO process.

Based on the book co-authored by former CNBC anchor Nicole Lapin and Wall Street analyst Brian Sozzi, Decoding The Wall Street Journal, the daily newsletter is a lifeline to unlocking, and acting upon, an endless array of hidden financial and world news clues. On FaceBook and Twitter, Decoding The Wall Street Journal releases unique streaming content daily, as a compliment to the newsletter, to help get you through interviews right on down to after work cocktail parties. For more information, including to join the movement, please visit www.decodingwallst.com.