Hey, How's that Facebook IPO working out?

Whoops!  Another "Sure Thing" bites the dust.

Well, Facebook Face-Planted, and now the fingers are a-pointing.  Did the underwriter oversell the stock?  Should they have sold fewer shares at a lower price?  Maybe the "glitch" on the NASDAQ trading system is to blame?

Or maybe Facebook is just a shitty investment - overvalued by a factor of 10.   And gee, just like the housing bubble, if you bothered to read anything at all from anyone who cranked numbers on this, (as opposed to the media's "gee-whiz" articles) you would discover that, lo and behold, a lot of people saw this coming.   You just had to read the writing on the wall and not be distracted by the roar of the crowd.

Will Facebook fall some more?  Bet on it.

"Facebook's IPO priced at a level well above where we foresaw compelling 12-month returns," BTIG analyst Richard Greenfield said in a research note Monday. With revenue and earnings growth decelerating in 2012, "we find Facebook's current valuation unappealing."

The drop Monday dealt Facebook Chairman and Chief Executive Mark Zuckerberg about $2.1 billion of paper losses, though his stake was still worth more than $17 billion Monday morning. The social network's founder also retains almost 56% of Facebook's voting power.

The slump is likely to turn up the heat on Facebook to boost its performance by generating more revenue from its massive user base, which includes more than 900 million active users. The company's latest first-quarter earnings slipped 12% amid surging expenses.

Revenue actually fell compared with the fourth quarter, a decline the company blamed on "seasonal trends" in the advertising business and growth in markets where Facebook generates less revenue per user, according to a regulatory filing last month.

Rob Enderle, a principal analyst at San Jose Calif.-based Enderle Group, said Facebook's earnings and revenue don't justify the high price of its stock.

"The insiders made a ton of cash, but the investors who are probably Facebook users lost a lot of money, and it's going to affect their impression of the company," he said. Enderle added that he targets a "conservative" price between $18 and $20 based on the company's earnings and risk.

Dow Jones Newswires

May 21, 2012 16:54 ET (20:54 GMT)

In other words, this stock sucks.   At $3.80 a share, it makes sense.   At $38 a share, it is nonsense.


But hey, you still have your GOLD, right?  How's that doing?

Ouch.  Hope you didn't buy at $1800 an ounce!

Oh, sorry I asked.   Really bad day for the true-believers, ain't it?


But, of course, speculative gambling-like investments have to be better than plain old equities, right?

NEW YORK (Dow Jones)--The Nasdaq Composite index rose the most since December as hopes of political progress in Greece and talk of government efforts to buoy China's economy trumped a steep decline in Facebook's newly public stock.

The tech-heavy index jumped 68.42 points, or 2.5%, to 2847.21, its biggest percent increase since Dec. 20, as Apple rose 5.8% and Google climbed 2.3%.

Other benchmarks saw their biggest gains of the month. The Dow Jones Industrial Average climbed 135.10 points, or 1.1%, to 12504.48, avoiding a 13th loss in 14 sessions.

The Standard & Poor's 500-stock index added 20.77 points, or 1.6%, to 1315.99. The materials and information technology sectors led advances, with the latter snapping a 12-day losing streak, its longest ever. 

 
In other words, No.  The stock market had quite a run since October, and in the last 12 days has been hammered, based mostly on fear.   But today alone, as Facebook fell flat on its face, the broader market took off again.   Because people realized that Facebook ain't "the next big thing" and moreover that the sky ain't falling, just yet.   Investing in moon colonies or underground bunkers are both bad ideas.


Diversification is the key to investing.  That and not trying to time the market.   Invest in a number of things, and get more conservative over time.


But walk away from anything advertised on television.  Once it is on the TeeVee, it is too late to invest.  And this is true for Facebook, Apple, or Gold.   When the gurus start hyping it, well, that ship has already sailed!

And to all you Facebook "investors"......

Using the Media as Your Investment Adviser

The only worst investment counselor than the IRS is the mainstream media.  If you take investment advice from idiots like the shouting guy, you have no one but yourself to blame, when it all melts down.

They are at it again, the mainstream media, going all ga-ga over the Facebook IPO.  They are gushing like a sophomore cheerleader does, over the football team captain.   "Oh, Mr. Zuckerstein!  Can we give you all our money?  Please?"

What the mainstream media fails to report, however, is that this stinker of an IPO is over-valued, in my estimation by a factor of five.

As I noted in earlier postings, IPOs in general were created for one thing and one thing only  - to allow insiders to cash out, usually on a stock they know is going nowhere.  And history bears this out - even recent history - where Groupon and Zipcar IPOs have turned out to be, well, less than what people thought.

But still, the huddled masses yearning to be Millionaires, all want to "get in" on these deals, convinced that they are "missing out" on the "next big thing."  It is the Casino Mentality at work in the marketplace.   Stocks are not sold as rational investments, but rather as speculative gambles.

But historically, most of these "next big things" have gone bankrupt, or were not the great investments that people thought they were.  When you pay top dollar for a stock, only to see it drop to 1/5th its initial value - and stay there for years, this is not an "investment" but just a rip-off.

But beyond IPOs, the media hypes the snot out of different companies and different stocks, all the time.  And in most cases, these stocks go up in value, simply because viewers buy them.   This, in turn, is used to "validate" their predictions.   But once the initial hoopla is over - and the stock price peaks - the people who really know what the stock is worth will sell out, and leave you holding the bag.

Of course, this sort of pump-and-dump is ripe for fraud.   And people have been arrested for setting up websites or spam mailings that hype penny stocks to ignorant investors, who raise the prices dramatically, while the guy who started it all sells out.   And it is hard to say whether these mainstream media sites are doing this or not - we may never know. 

But beyond the possibility of outright fraud, you have to ask yourself the most obvious question:  If the shouting guy really knew which stocks were best, why wouldn't he just buy them himself and shut up about it?   Like any other get-rich-quick scheme, no one bothers to ask this question.   If there really was a "money system" no one would be so stupid as to tell people about it!

But here we go again, and it is like watching a friend drive their car off a cliff.    This Facebook IPO will go off as scheduled, and the great unwashed masses will buy the stock - available on e*trade - for twice the IPO price - making millionaires and billionaires out of the insiders, but eventually bankrupting a lot of the little people.

And perhaps, this could presage a market-wide meltdown, another dot-com bubble, like we had a few years back.   Any why is this?  Because the media hypes these stocks, and the average schmuck buys them.

Of course, even a downturn presents opportunities.   If you could time the market, you could sell all your stocks before such a meltdown, and then, at the nadir, buy them all back for a fraction of the cost.

The problem is, timing the market is nearly impossible to do, without an operable time-machine.   While I firmly believe that Facebook will be a crappy stock for a long time, I am not sure whether this will just affect the idiots who buy it (at peak price, like the gold bugs) or whether it will take out the entire tech sector, as our last bubble did.

And after bubbles collapse, the sound investments recover quickly - as they did from the market drop of February 2009.   If a company is making money and paying dividends, people quickly realize it has value, and that panic selling was a bad idea.

Fear and Greed, those old bugaboos.   People will buy Facebook based on greed - and a fear of being "left out" of a "good deal".   And when the stock crashes, it is fear that will drive people to sell off other stocks in this sector - even for companies that are making money and are rationally priced.

But it is clear we are in for a correction with regard to many of these IPO stocks.  Groupon looks poised to implode, and ZipCar, while mildly profitable, is still horrifically overpriced.  The Facebook debacle will no doubt either takes these entities out, or severely reduce their stock prices.   The result could have an avalanche effect on our overall fragile economy, as stock losses would spook investors, and reduce consumer confidence.

Thank you very much, Mr. Zuckerstein!