May 23, 2012
So much has been written about the recent Facebook stock offering that I am reluctant to add to the stack, so I'll keep it short. After going public at $38/share last Friday and climbing briefly to $45, the stock has reversed, closing Tuesday at $31.11, for a loss of 18% from the offering price. Most investors on that first day of trading paid more than $38, and over 500 million shares changed hands.
In the weeks before the IPO we (along with most other investment firms) received many calls from clients or would-be clients interested in the killing to be made by investing in Facebook. And why not? Facebook has nearly a billion users worldwide (I am one) and has become useful for keeping in touch and generating ad revenues for its parent company. Something used by 15% of the world's population is a huge deal - so why hasn't it been a good investment?
First, it's only been a few days, and Facebook may ultimately prove to be a fine investment. But inside baseball is a game seldom won by the public, and for the last four years, institutions and hedge funds have been buying Facebook stock at much lower prices than the public paid last week. Shocked? You didn't really think that Wall Street - with its big bailed-out brokerages and banks - would really give the little guy a break, did you? The media didn't help much, with plenty of ballyhoo (see paragraph 12 for the $50 prediction).
So far, the IPO has been a fiasco for investors. That's because more than just a share of stock, Facebook buyers bought something else - something we try to caution investors against buying: hype.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).