DEFINITION of 'Friendly Hands'

Friendly hands is a nickname for investors in an initial public offering (IPO) who will likely hold onto the security for a long time. Friendly hands are not interested in purchasing the new issue with the hopes of flipping the shares for a quick profit. Long-term investment in IPOs tends to reduce stock volatility, thus promoting stability that could draw in other investors who care about a base of stock supporters with extended time horizons.

BREAKING DOWN 'Friendly Hands'

In a book-building process for an IPO, the underwriter(s) will traverse the country (or world in some cases) with members of company management on what are known as road shows. The intent is to market new shares to serious institutional investors who will place large blocks of shares in long-term portfolios. Companies that go public for the first time do not want their stock to be played with, and the underwriter(s) and distribution group prefer not to engage in price stabilization upon launching of the IPO into the market. Therefore, as much as possible, allocations of a limited number of available shares will be directed into friendly hands. The opposite of friendly hands is a flipper, who is more interested in profiting from a hot IPO issue by selling it almost immediately after purchasing it from the underwriter or a member of the distributing syndicate.

Friends With Benefits

Institutional investors who demonstrate consistent friendly behavior with IPO participation place themselves in favorable positions for future highly-coveted IPOs. By showing that they are committed to owning shares for the long term, they will likely receive better allocations than flippers for a hot issue. In fact, flippers may get zeroed out entirely on an underwriter's book. As a company matures in the public markets, friendly hands may even be consulted by the company about corporate governance matters or key strategic issues.

  1. Friends and Family Shares

    Friends and family shares are often the very first form of outside ...
  2. Depository Trust Company IPO Tracking ...

    The Depository Trust Company IPO Tracking System enables underwriters ...
  3. Book Building

    Book building is the process by which an underwriter attempts ...
  4. Eating Stock

    Eating stock refers to the forced purchase of a security when ...
  5. Pot

    Pot is the portion of a stock or bond issue that investment bankers ...
  6. Underwriting Spread

    An underwriting spread is the difference between what underwriters ...
Related Articles
  1. Insurance

    IPO Flippers And The Companies Who Hate Them (TWTR, ETSY)

    Learn how flipping activity affects an initial public offering.
  2. Small Business

    Should You Hire Friends As Employees?

    Here is a look at the pros and cons and the ethical implications of hiring (or not hiring) a friend.
  3. Investing

    Top 5 must-haves for flipping houses

    Buy a house and "flip" it for a profit may sound like a great investment idea. But not everyone is able to do it. Find out these 5-must haves before you make a purchase.
  4. Investing

    The Road To Creating An IPO

    Through an Initial Public Offering, or IPO, a company raises capital by issuing shares of stock, or equity in a public market. Generally, this refers to when a company issues stock for the first ...
  5. Investing

    Read This Before Buying a Vacation Home with Friends

    Going in with friends on a vacation home means savings on the mortgage and expenses, but divergent views and goals could lead to greater costs. Here is how to avoid conflict.
  6. Investing

    5 Tips For Investing In IPOs

    Are you thinking of investing in IPOs? Here are five points to consider before jumping into the initial public offering market.
  7. Insurance

    Evaluating The Facebook IPO

    Facebook's IPO is sure to be the biggest IPO of the year. Find out what to expect.
  1. Is there a time limit that must pass before short sales are accepted for IPOs?

    The quick answer to this question is that an IPO can be shorted upon initial trading, but it is not an easy thing to do at ... Read Answer >>
  2. What is the difference between an IPO and a seasoned issue?

    Learn how companies issue IPO securities when they first go public and seasoned issue shares if they sell more stock in the ... Read Answer >>
  3. What are some roles of an investment bank?

    Explore the world of investment banking and discover the various functions investment bankers serve, such as handling IPOs ... Read Answer >>
Trading Center