Prospectus Reading 101, or how to pick sales pitch, butt covering and 'forecast'

Basically, prospectuses are structured as a combination of "butt covering" disclosure and sales pitch spread over a couple of hundred pages.

There is rarely, if ever, an answer to some of the more obvious questions you might ask - such as, how much did the people selling you their shares pay for them in the first place? And how long ago? And why are they getting out? What do they know?

To save you some time reading the fine print:

1) You are pretty much on your own. The company offering the shares reckons its accounts were right for everything up to the last audit - after that, it's informed guesswork known as a "forecast". As a rule of thumb, think of them like long-range weather forecasts. Get the picture?

2) Don't go crying to the regulators. They don't vet prospectuses, haven't for years, although they might "review" them after being jabbed in the ribs by someone who did.

3) Pictures are only there to break up the words (a bit like a mouth-watering ad for fast food). No one in them endorses the float (except, hopefully, the board and management) and there's no certainty any of the things in the pictures actually belong to the company, or even exist.

4) Ditto for diagrams and graphs, which are probably not to scale - particularly if it apparently shows big increases, because they probably used a really small scale to exaggerate the result. And someone else outside the company did them, anyway, and they guessed at some of the content. With the very best of intentions.

5) CYs and FYs are the sharemarket equivalent of SMS and Twitter short forms. They stand for calendar years and financial years. Prospectuses frequently forecast the result for the next CY, even though the company works on an FY. That means you may never get to see whether they hit the CY forecast. A good prospectus, and a good company, will give you a financial year forecast - and fess up later if it missed the mark.

6) "The indicative price range is indicative only." Such language is the legal equivalent of rabbit droppings - evidence that lawyers have been nibbling at the prospectus, even though you rarely see them in daylight. In this case, they're saying they might change the price - most likely if no one's buying. The range is usually decided by the current owners as one that will deliver sufficient profit after paying for the marketing and advice on how to minimise tax on that profit. Underpricing of an offer is about as rare as a Tax Office apology and a refund with interest.

7) Which brings us to the "institutional offer". The majority of the stock in any public offering goes to institutions - professional funds managers acting for your superannuation and pension funds or insurance companies - which typically end up owning about 80 per cent of large listed companies. Generally, they will get a better deal on the shares than you. It's the difference between being the buyer of a single toilet roll and a 16-pack - they get a discount for bulk purchases, and some of them even manage to wangle a percentage share of the investment banks' fees for "supporting the issue".

8) Institutions also tend to get personal visits from a company's management to convince them to invest. You will not. After all, you're only buying the 1977 Nissan but these people are using other people's money to pay for a fleet of fully optioned stretch Hummers, so they get the red-carpet treatment. These presentations come close to making a nonsense of the frequently seen prospectus disclaimer that no one has the authority to make any representations outside the prospectus, and if they do, the board didn't authorise it, OK?

9) "Broker firm allocation" means you are already a client of a stockbroker, which has been told by the float organisers it can share in the fees booty if it gets enough of its clients to buy shares. So, while your broker might love you as a client, remember it's probably getting a percentage of any money you invest. And it will get that no matter what price the shares trade at - plus brokerage when you sell.

10) "Priority offer" usually applies if you already have some form of relationship with the entity being floated. This is not always a bonus. Myer One cardholders had a walk-up start to buying shares in Myer last year, darn it. In the current Miclyn Express Offshore float, "priority" means shares put aside for mates and family. It happens.