Investment Firms Warned Off Facebook IPO In Advance While Small-Timers Lose Big Money

In the days leading up to last Friday’s initial public offering for Facebook stock, the company raised the IPO price by several dollars a share, leading many small-level and amateur investors to wonder if maybe there was something more to the company than a place to post photos of you and your friends waiting in line to see Men In Black III. But at the same time, large investment firms were reportedly bailing on sinking their money into the social media site.

The Wall Street Journal reports on how the folks at L.A.-based Capital Research & Management scaled back the firm’s Facebook investment as the clock ticked down to the IPO, following discussions about the stock with Morgan Stanley, one of the banks underwriting the deal.

It’s not talked about very much, but as part of the preparations for an IPO, securities firms are not forbidden from having selective chats with a few large investors.

“Wall Street firms, for their part, say they give certain information to big clients because the clients pay for this type of data,” writes the Journal. “It is typical in an IPO for analysts or sales staff to give certain information to clients, they added. But that usually doesn’t apply to small investors.”

Thus, while these large firms were able to protect the piles of cash they would otherwise have invested in a stock that finished its fourth day of trading $10 below the initial sale price, individuals — like the retired St. Louis woman who bought 3,000 Facebook shares at that peak value of $42 — are now staring into the investor’s abyss.

“We don’t get the information that these institutional fund managers are getting,” says the woman, who has lost — at least on paper — $30,000. “We’re at a disadvantage.”

Bloomberg has the story of a data systems manager in Louisiana who has been watching his $4,000 investment deflate like something that deflates really quickly and is really depressing to watch deflate.

“It’s disheartening to know that things get over-hyped,” he confesses. “That’s about a 12th of my annual income — so a month’s salary.”

The Facebook fiasco (which, for all anyone actually knows, could eventually turn around and be the greatest investment ever made) has regulators, legislators and lawyers putting the whole IPO process under a microscope.

“Analysts should not be giving opinions about the IPO at the same time their firms are acting as underwriters,” one securities lawyer — not currently involved in any Facebook-related litigation — tells the Journal about the practice of pre-IPO info-sharing. “They should not be giving information that’s not in the prospectus to favored clients.”

Some Big Firms Got Facebook Warning [WSJ.com]

Facebook Investor Spending Month’s Salary Exposes Hype [Bloomberg]

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  1. Michael Belisle says:

    I have two points, which I feel are basic stock market logic:

    1. There is such a thing as unrealized gains. You only “lost” money if you thought buying on stock on Monday and selling it on Wednesday was a good idea. If that’s the case, you are an idiot.

    2. The point of an IPO is to make money for the company and early investors. Please remember this for the future. If the stock immediately goes up significantly, then the company lost money.

    3. You, the small-time amateur investor, too can do research to decide if Facebook is really worth $62B-something. Not that this is approximately 102 times earnings, or 14 times current assets. Hint: if it is worth it, it’s probably a long-term investment.

    • fsnuffer says:

      Don’t try to use logic. It is much easier to blame someone else than it is to admit that you were greedy and did not do your research. The big boys can afford armies of research analysts that the individual investor never can. This is why I try to stay away from stocks and buy mutual funds that have these armies of analysts.

      • Michael Belisle says:

        I wouldn’t go so far as to say that one shouldn’t invest in stocks. You can, even as a small investor, but you at least have to do some basic research. The armies of analysts are bit like the Wizard of Oz (unless they’re cheating Madoff-style and/or Gecko-style). They’re just not all that amazing. The vast majority don’t end up doing much better than a few points over the index in the long run.* For proof, just look at the 7-year returns on just about any mutual fund.

        One 40-year-old book in particular serves as a timeless primer on how to not be a speculative idiot.

        __
        * Mathematically, since so much of the market is made up of large institutional investors, they effectively can’t do better than the index.

      • coffeeplease says:

        This is maddening. Morgan Stanley had insider info from underwriting the stock, they then shared this info with select customers leaving the individual investor out to dry. Do you not understand the concept of insider information? Just in case you don’t it means the information is not public knowledge, ergo no amount of research the individual investor could do would uncover that information.

        Your assertion that they were idiots and didn’t do their homework while simultaneously touting mutual funds (which I am quite confident that you didn’t do your homework on) which have many of the same analysts feeding you some of the same bull they fed out under the Facebook IPO is a bit ridiculous. You do realize at the end of every quarter almost all fund managers purge the losers and add in the winners so their quarterly statements show they were making good investments yes? When your mutual fund loses 20 to 30 percent of it’s value I can’t wait to see you kicking yourself in the ass talking about how you didn’t do your own homework.

        • Bsamm09 says:

          “You do realize at the end of every quarter almost all fund managers purge the losers and add in the winners so their quarterly statements show they were making good investments yes?”

          So….taking a bunch of losses and then buying a bunch of stocks that have appreciated while you didn’t own them shows that you were making good investments? Do you just look at the holdings when you invest because the P&L in your scenario would show a huge loss and hardly any unrealized gains.

          • coffeeplease says:

            You seem to be missing the fact that if 60% of the stocks they chose were winners and 40% losers you might have realized a gain of 1 to 5%. That doesn’t change the fact that they take a bunch of those losers and buy up some winners to make the fund look better. It’s done every quarter which, if you’re paying attention, you’ll notice that at the end of the quarters the stocks that have realized strong gains typically see an additional surge in share price.

            We don’t buy mutual funds, they’re for suckers and rigged just like the rest of the market. So no, I don’t look at mutual funds’ holding sheets or P&Ls.

            Love,

            Wife of former stockbroker

            • Blueskylaw says:

              “That doesn’t change the fact that they take a bunch of those losers and buy up some winners to make the fund look better.”

              It’s called window dressing.

              Definition of ‘Window Dressing’
              A strategy used by mutual fund and portfolio managers near the year or quarter end to improve the appearance of the portfolio/fund performance before presenting it to clients or shareholders. To window dress, the fund manager will sell stocks with large losses and purchase high flying stocks near the end of the quarter. These securities are then reported as part of the fund’s holdings.

              Investopedia explains ‘Window Dressing’
              Performance reports and a list of the holdings in a mutual fund are usually sent to clients every quarter. Another variation of window dressing is investing in stocks that don’t meet the style of the mutual fund. For example, a precious metals fund might invest in stocks that are in a hot sector at the time, disguising the fund’s holdings, so clients really have no idea what they are paying for.

              Window dressing may make a fund appear more attractive, but you can’t hide poor performance for long.

              http://www.investopedia.com/terms/w/windowdressing.asp#ixzz1vnPH8weS

        • airren says:

          So if mutual funds are for chumps and the market is rigged, may I ask where do you and the ex-stockbroker stash your money?

          • coffeeplease says:

            We pick individual stocks and do a lot of research. We get burned from time to time but I think much less than the average investor. Right now we are heavy into dividend plays while the market is acting wacky. If the stock simply stays flat but we’re collecting dividends then we’re making money. If we see a significant short term pop on an individual stock we’ll take the money off the table and either sit on the sidelines until the stock comes back down or move the proceeds into something else. The whole system is rigged though, the individual investor will never ever know what the insiders know on Wall Street so we take the money and run when the opportunity arises.

            We also have some long term sector plays. We’ve been short on some gold triple shorts for a while and plan to probably leave it there for the next few years. I think Greece bailing out of the Eurozone will probably spike gold back up but we’re still well in the green on the gold shorts. We’re long on oil for the long term because it’s going to run out sometime.

    • MaxH42 thinks RecordStoreToughGuy got a raw deal says:

      Great points, #1 is something people should recognize from the discussions of being underwater on a mortgage.

      I had considered selling FB short, just a few hundred shares, too, but just because I turned out to be right doesn’t mean it would have been any less risky.

      • coffeeplease says:

        Except for the fact that the window is legally closed on short selling via the underwriters for 30 days, so you can’t “borrow” that stock from any of the underwriters which was almost all of the issue. You can “borrow” that stock from individual investors but considering the window to simply transfer the holding is typically 2 or 3 days the scant few shares that might have been available to short wouldn’t have even been available until a minimum of 3 days after the IPO launched.

    • sherrietee says:

      This, this, a thousand times this.

      I’m a “small time investor”. *I* knew that it would be stupid to invest in FB. Will it be stupid to invest in the future? Maybe, maybe not. But IPO’s as a general rule are a bad idea.

      I have money invested in quite a number of stocks. I haven’t *lost* anything in this stockmarket ride because I haven’t *sold* any of it. It’s all on paper until you sell it.

      • JJFIII says:

        Yeah, you must have thought it was stupid to invest in Google and Apple as well. The facts are simple, the stock market is legalized gambling. Sometimes you win, sometimes you lose. To say “I haven’t *lost* anything in this stockmarket ride” is silly and WRONG. You have lost net worth. You have not lost cash, but you have lost worth.

        • JennQPublic says:

          I thought investing in Google was a good idea, but didn’t think snapping up shares of Facebook was smart. Maybe I’m an investing genius! Or maybe I just have some common sense.

        • Michael Belisle says:

          I think the main point here is that reporting on the 4-day return is like calling a horse race. If I were looking for a good value in the market, I probably wouldn’t look at Facebook. It’s going to take years for the company to catch up to its market capitalization. The market priced it for long-term growth (and the company, unsurprisingly, priced the IPO for maximum hype). It could very well turn out to be a good investment, like Google and Apple eventually did after many gut-wrenching periods.

          Another point here is that if you thought Facebook was a good value at $62, then you must think it’s an even better value at $38. Perhaps you should consider using dollar-cost averaging to lower the cost basis of your holdings. If you didn’t think it was a good value at $62, then why the hell did you buy?

    • Blueskylaw says:

      Rebuttal:

      1). They may be unrealized losses, but if you have to hold the stock for 10 years in order to break even and the dividend is a penny or even non-existent, then you are essentially losing money because it could have been put into an interest bearing account.

      2). If the stock goes up immediately then thats a good sign, it’s only when it explodes past the issue price that it is bad for the company. The company got the money they wanted/needed from the market and that is the whole purpose of an IPO.

      3). You, the small-time amateur, usually can’t do your own research. It took “insider” information from securities firms to the big investors in order for them to know this IPO was a dog, what chance do you have on figuring this out as a small investor when the big investors couldn’t even figure it out without inside knowledge?

      • Loias supports harsher punishments against corporations says:

        Winner: Blueskylaw

      • George4478 says:

        Your #3 is dead wrong. No insider info was necessary; a simple look at the PE ratio showed this stock was overpriced. This information is free; numerous TV/radio/newspaper/Internet-based analysts were saying this same thing.

        The cost of finding out this stock was a dog was looking at freely-available information being repeated in numerous places. An investor that does not look at the basic stock metrics when buying ANY stock/mutual fund is not an investor, but a uneducated gambler.

        • Blueskylaw says:

          “Your #3 is dead wrong. No insider info was necessary”

          If no insider information was necessary, why can’t these large investors survive without it if it’s as easy as looking at a P/E number?

          • Michael Belisle says:

            In this specific instance, no insider info was necessary to do a first-order analysis of the public details on the offering. Just because the P/E ratio suggests caution here doesn’t mean that’s all someone needs in all instances.

            So perhaps some insider information contradicts the public information. But, in that case, either you have the insider information (and it’s probably illegal to act on something not yet known to the market at large) or you’re speculating.

            The point here is not to say that the P/E ratio will tell you everything in all instances. It’s just that in the case of Facebook, it’s not hard to figure out that an overhyped IPO is probably a bad value for early investment.

            • RvLeshrac says:

              That’s interesting, before they received the insider information, the large investors mentioned in the article were going to buy the shit out of Facebook.

              I guess there was some magic “research” just between the time they were ready to dump everything into the IPO and the time they received the information the SEC is investigating.

        • ajaxd says:

          P/E is not a meaningful indicator of anything on it’s own. I have a misfortune to own a stock with P/E ratio of 6 and it’s been losing money for the last year. You have to look at P/E ratio, forward P/E ratio and in general for the rate of revenue/profit growth. A company with P/E ratio of 100 that can demonstrate dobule-digit growth rates is not necessarily overvalued (but only if it can deliver that growth which is questionable for FB).

          • Blueskylaw says:

            A high P/E ratio means it’s overvalued – a low P/E ratio
            means the stock is trading at a discount for a reason.

      • Michael Belisle says:

        It’s all about calculated risk, based on the information available to you at any moment in time. There is minimal risk in the interest-bearing account, but if you only put money in perfectly safe investments like cash-equivalents, you’re not very likely to beat inflation by much, if at all.

        Which, of course, is where diversification comes it. You can estimate the risk on your holdings, and balance your portfolio based on how much you’re willing to tolerate, how soon you need your money, etc. Facebook may very well be a part of a healthy long-term investment strategy. In my portfolio, it’d be a small component, and I’d wait for the dust to settle before buying.

        And of course there are always unknowns, even to people who think they know something. A little bit of insider information didn’t save anyone in 1929. Estimating the chances that an unexpected development will affect your holdings is just a part of the game. There are strategies that help you stay safe when considering all unknowns (known and unknown)

    • zibby says:

      Michael, I must disagree with your points as they do not support my feelings of entitlement and victimhood. Sorry.

    • coffee100 says:

      The purpose of an IPO is to raise capital. Not to “make money.”

    • El Matarife says:

      Did Morgan Stanley do something wrong? Absolutely. Should they be punished? Absolutely. Should Joe Schmoe who bought 3,000 shares of Facebook on day 1 who has absolutely no clue how to value a company and bought the shares because because he was “trying to get the next Google or Apple” (which makes no sense btw, Google was DOWN the first day of its IPO and Apple had been a public company for decades before taking off) get bailed out? Absolutely not. I can guarantee you that the the moron who bought 120k worth of Facebook wouldn’t have known what the hell a lowered revenue projection was anyways. And, unless he or she is a millionaire (which they aren’t because they’d have someone else managing their money) they also don’t understand diversification.

      Facebook was overvalued, is still overvalued, and will continue to be overvalued based on nothing but the name. Retail investors who try and catch a rocket ship shouldn’t complain when they get burned from launch failure. I normally am totally on the side of the small guy, but this is a case of people trading something they don’t know.

      • dush says:

        Was it “wrong” or actually illegal?

        • El Matarife says:

          Not sure yet. Definitely wrong, possibly illegal. Whatever decision is made it doesnt excuse people who had no clue what they were doing and went ahead and bought Facebook because it was Facebook.

    • notlazyjustdontcare says:

      Stop checking this thread and finish your dissertation.

  2. u1itn0w2day says:

    Inside information on Wall Street??? NOooo

    Just pay attention to the news. GM pulls advertising.

    • vastrightwing says:

      You are correct. I stayed out of this because I don’t have faith in the FB team to do what Google and Apple do. I just don’t. This was all to make the original executives richer. I don’t see what they will do with this extra cash. Maybe throw some parties and upgrade their offices. You know, just like the Internet startups did. LOL. Let the good times roll!

      • LJKelley says:

        No, it was to pay off the orignal investors who wanted to cash out. In fact Zuckerberg is not rich until he sells his stock (the only stock he sold was to pay taxes) and having the price fall each day is just making him less rich.

    • MaytagRepairman says:

      I was suspicious when…

      (1) I received an email from etrade that they were going to make their shares available to their customers. I could pick any lot size and make an offer for them. They would fill requests pending availability. Since etrade never sends me email about any IPOs this was very suspicious.

      (2) My wife who never listens to any business or tech news asks me if investing in FB is a good idea.

  3. DeltaTee says:

    As a general rule, individual investors are not savvy enough to be investing in individual stocks and should only be doing so with money that they have no qualms about loosing. If it is money you had to have for next week, why are you putting it in a long term investment?

    • vivalakellye says:

      You don’t need to be a large investment firm to know/find out that Facebook reached its peak about 3 or 4 years ago.

  4. Torchwood says:

    Some of us who use Facebook wouldn’t invest in Facebook.

  5. HenryPython says:

    I never saw the draw for investing in facebook. It produces nothing, it sells nothing. The only thing it creates is drama and so does my ex-girlfriend and she does it for free.

    • YOXIM says:

      Beautifully said.

    • TheWillow says:

      it produces eyeballs to advertisers. much like NBC, CBS, FOX, Google, etc.

      • bhr says:

        It’s a database of the habits, jobs, lifestyles of 300,000,000 customers. That has significant value besides the ad dollars they are bringing in right now.

        The reason the stock tanked (well, one of them) is people realize that FB doesn’t actually know how to capitalize on that database.

        • kbsparky says:

          Facebook does not have 300,000,000 customers. They have that many users.

          Facebook’s customers are those who are paying for access to the users.

          There is a big difference between a customer and a user.

    • RvLeshrac says:

      Banks, especially investment banks, produce and sell nothing, but are historically well-performing.

    • Princess Beech loves a warm cup of treason every morning says:

      “Relationship status changed to *it’s not complicated*”.

  6. Fubish says: I don't know anything about it, but it seems to me... says:

    Basically, it’s pretty bad: Bono’s (yes, THAT Bono) Elevation Partners were given the information by Morgan Stanley and profited by nearly $200 million. Other schmucks who were small-time investors were not given that information and pretty much lost majority of value.

    This B.S. is probably not illegal (we’ll find out soon enough) but it certainly ain’t fair or ethical.

    • Talmonis says:

      The rich will always take care of each other.

    • fsnuffer says:

      was the information “given” or “paid for”. Nothing on Wall Street is ever “given”

    • wildbill says:

      It is perfectly fair. They paid for an analysis of a stock. Anyone can do that. You can find some for free (you get what you pay for in that). Unless the analysts were lying to pump things up (happened with MCI a while back and killed an entire industry).

  7. Hibyeman says:

    facebook is a no gain all loss i rarly get i facebook it scares me

  8. dolemite says:

    “his $4,000 investment ” “”That’s about a 12th of my annual income — so a month’s salary.”

    I think you’ll be fine. That’s like 3-4 months’ salary for many people.

    • bhr says:

      Um. Math fail. Most American household bring in more than 3500/month (median income is 44k/yr).

      • kc2idf says:

        I’m thinking this may be his post-tax income.

        I also think that his job title implies a somewhat higher salary range.

  9. lovemypets00 - You'll need to forgive me, my social filter has cracked. says:

    I thought this is how all stock investments worked, that if you’re a little guy, don’t even try it because you never have all the info the big guys do.

  10. Inglix_the_Mad says:

    I have one point which is basic stock market logic. This point was provided by a friend who made money for his clients, and himself, and got the heck out. This advice is something I hold close every time I think of buying into an IPO or random investing:

    “The market is a casino game rigged against the “small-time” investor. You don’t have the connections to really get the information that counts in this Next Quarter Syndrome (NQS) market. You also don’t have the money to lose when you bet wrong, so you either always have to play it safe and not make much or take huge risks like someone picking numbers at a craps table praying you hit more winners than losers. You, unlike institutional investors, do not have the ability to ride the spread to make money. You cannot execute trades at a minuscule cost. You’ll either sell that “hot” stock and take a loss, or pray it goes back up when that “safe” stock slides to oblivion.

    Everything is against you, so unless you have inside information, you’d have just as much luck picking the winner in a casino craps game.”

    Says a lot when a guy that played the “casino” and won enough to quit tells you why you can’t win.

    • Fubish says: I don't know anything about it, but it seems to me... says:

      Several years ago there was a news story about a a group of analysts who tried an experiment: they analyzed and picked stocks to invest in (on paper) and at the same time bet the horses (on paper) all with the same amount of money.

      Guess which “investments” made a profit. Go on, guess.

  11. VintageLydia says:

    Can you still download SkiFree anywhere? I miss that game…

  12. Blueskylaw says:

    “Wall Street firms, for their part, say they give certain information to big clients because the clients pay for this type of data,”

    I don’t understand how this is not illegal? Essentially, securities firms are telling their large investors that this stock is a dog, while telling the odd lot investors what a wonderful opportunity this is. Then you wonder why there are bail-outs and actions like Occupy Wall Street; people are pissed with Wall Street and for good reason.

  13. newmie says:

    People have said it before, but it merits being said again….The whole game is rigged.

    • Lyn Torden says:

      Especially when they are selling the “do not buy this at this crazy price” advice when I was giving it away for free.

  14. sirwired says:

    In Morgan Stanley’s defense, they have stated that the investment advisory arm of the company (which allegedly is firewalled from the part that does underwriting) just took some recently-released negative information (which everybody allegedly had access to) and relayed their opinion that the underwriting part of the company was full of shit.

    Is this likely? No, unless the investment advice arm was acting as a fiduciary. (Acting as a fiduciary is unlikely, since brokers just went through a lot of trouble to STOP congress from mandating they act in that capacity.)

    I think MY company does a lot of bone-headed things, but I don’t relay this opinion to any of my customers.

  15. Clyde Barrow says:

    Thus, while these large firms were able to protect the piles of cash they would otherwise have invested in a stock that finished its fourth day of trading $10 below the initial sale price, individuals — like the retired St. Louis woman who bought 3,000 Facebook shares at that peak value of $42 — are now staring into the investor’s abyss.

    “We don’t get the information that these institutional fund managers are getting,” says the woman, who has lost — at least on paper — $30,000
    _______________________________

    This is my lesson learned years ago. Never again. I don’t trust any of these broker-investor-pricks and never will. THE ONLY ONES MAKING MONEY ARE THE BROKER’S. I have all my investments in government bonds; I may only make 1 – 2% per year but guess what? In the past five years I’ve lost ZIP, NADA, ZERO, NOTHING. And because I am in the government I pay next to nothing to have someone manage my money. Brokers and banks are crooks.

    NEVER AGAIN!

    • Meatball says:

      Anyone with half a brain could have easily seen that Facebook was way overvalued considering they make nothing. This woman that lost her money is an idiot and shouldn’t have been investing if she didn’t do her due diligence.

      • cosmic.charlie says:

        She doesn’t lose any money until she sells anyways.

      • Clyde Barrow says:

        Well I know that now and have gotten over the hype when a newbie comes out such as FB. In the past, I would have gotten bent out of shape and put money into it because I didn’t know any better. I am glad I learned however and you’re right.

      • MrEvil says:

        You’re spot on, Facebook doesn’t make anything. Their product is their vast user base that could almost leave overnight. At least Google has their search technology as a product, even though they too get the overwhelming majority of their revenue from selling advertisements.

        IMO, Zuckerberg saw that the only direction to go was downward and the IPO was simply a means for him to collect his billion dollar payout.

    • Jane_Gage says:

      But when you adjust for inflation how are those bonds serving you?

  16. Eaglekeeper says:

    I thought about buying, did 5 min of reseach and it was obviously way overpriced. If you bought shares and are mad you were Zucked, the only person to blame is the one staring back at you in the mirror.

  17. coffee100 says:

    Awwwww I’m shocked.

    How’s that FREE MARKET working out for us, huh? How about that FREE MARKET?

    • HomerSimpson says:

      You really don’t wanna know where that “invisible hand” has been!

    • cbutler says:

      Coffee, go back to that socialist ignorant hole you came from. Any half intelligent person knows it was a very BAD idea to invest in FB. Even I, as a staunch capitalist conservative knew that bid was for suckers. Don’t pin dumb shit like a clearly bad investment the likes of FB as a failure in free market.

      • RvLeshrac says:

        Really? Google has been an insanely good performer, without any products – on the public-facing side.

        Why should Facebook be any different?

        • cbutler says:

          My sarcasm detector me need calibration, but are you serious? Are you in a relationship with Coffee? Do you have any idea what you are talking about? You do realize Google doesn’t depend on a single model in advertising that Facebook does right?

          • RvLeshrac says:

            Google depends on a single model of advertising packaged in multiple ways: Text, image, video.

            Facebook depends on a single model of advertising packaged in multiple ways: Text, image, video.

            Google provides services to businesses for communication and data-mining.

            Facebook provides services to businesses for communication and data-mining.

  18. coffee100 says:

    Facebook ought to be shorted until every toilet in the building is clogged. It is a worthless company with an ugly web site and absolutely not one shred of business value at all except the dumbasses who use it, and none of those people would click on an ad if you paid them.

    We used to raise capital to build things like tractors and houses and farms and highways and infrastructure. Now we give $100 billion to a shitty web site and cry like bitches while some rectangle-head heel-rams it into those clogged toilets.

    I really don’t care any more. America has its head so far up its ass there’s no getting back to a rational country. We’re just watching the car swerve until it pitches off the embankment into a flood control channel at this point.

    God Bless America. We did our best.

  19. wildbill says:

    There WERE people screaming their heads off that this was a bad idea. These people in the story don’t know how to invest and made an emotional investment rather than a logical one. That is the only thing that has made this stock priced where it is.

    Same thing happened back in 2000 with a number of stocks including Amazon and Yahoo. Both have recovered somewhat, but it took Amazon almost 10 years to get back to it’s over inflated initial run up.

    People want to invest in products they know, but Facebook was at 75 P/E (price to earnings) whereas Apple is at 10 P/E. While still somewhat high, Apple has forecast at least in the near term some serious growth potential. Facebook was just a cash out.

  20. eturowski says:

    “like the retired St. Louis woman who bought 3,000 Facebook shares at that peak value of $42″

    Crikey, what ever happened to, “Don’t put all of your eggs in one basket?”

    Also, I thought old people were supposed to balance their portfolios with more bonds and other low-risk investments, rather than load up on hot, new stocks.

    • jono_0101 says:

      “Crikey, what ever happened to, “Don’t put all of your eggs in one basket?”

      Also, I thought old people were supposed to balance their portfolios with more bonds and other low-risk investments, rather than load up on hot, new stocks.”

      Generally, that is the advice. Younger investors can afford to take the risks associated with volitile, speculative, or new investments because they have many more years to recover if that investment doesnt work out. Older investors that are either retired or close to retirement should be encouraged to get into more secure investments, like CD’s, government bonds, blue chip stocks, etc. Things that don’t provide outrageous returns, but that also don’t have the risk of the bottom falling completely out. It’s hard to tell what happened with the woman in St. Louis (where I live BTW!). I don’t know if she was working with a Financial Advisor, or if she was doing trading on her own through Etrade or something like that. If she had an FA, and that was a sizable part of her portfolio that she invested in FB, I would hope that the FA told her it was a bad idea, and only put the trade through when she insisted, but if it was suggested to her to make that move, she should be looking for a new FA, and that person shouldn’t be managing ANYONE’s money.

      But you are right about not putting all your eggs in one basket. Nobody should have bet the farm on FB, or on any other IPO for that matter. If you do, you are taking a huge risk. If FB would have shot up to $50 or $60, everyone would be so happy and ecstatic, what an awesome investment! But since it didn’t, and some people bet it all, then now it’s FB, Morgan Stanley, capitalism, big banks, SOMEONE, ANYONE else’s fault, because it can’t be theirs, right? No way could it actually be thier fault….right?

  21. blinky says:

    The word “chump” comes to mind. When was the last time a stock went UP after an IPO?

  22. galm666 says:

    Funny enough, I knew it wasn’t a good idea to buy into FB with expectations to make immediate money. IPOs arent’ about day-trade-sell-now buys, they’re *ACTUAL* investments for the sake of gaining capital. You buy in, you wait a few years to see the payout of your investments.

    Buying into an IPO and expecting instant gains is like paying for your kid’s college tuition and expecting him to land a job before he clears his sophomore year.

  23. WarriorKitty82 says:

    Uh oh.

    Just uh oh.

  24. cbutler says:

    Honestly, people who invested in FB are way out of touch. I do t feel sorry for the

  25. Not Given says:

    When I heard about FB’s IPO, I thought, “RUN!!!”

  26. Carlos Spicy Weiner says:

    Now wait just a gall darn minute…I thought all the One Percenters got to the top by hard work and percerverence…can’t believe they got an unfair advantage ;-)

  27. evilpete says:

    I bought 100 shares at $38,..

  28. miguelggarcia says:

    Why in earth a retiree bought 3,000 shares of Facebook? I just hope she did it with a small portion of her assets, because otherwise, she’ll prove -once again- that investors are their own worst enemies.
    Now, treating the losses “as permanent” when the company has been trading for less than a week, talks about another great investor mistake.

  29. Droford says:

    Im hoping the Stock tanks and Facebook ends up deleted off the internet or at best like myspace where no one talks about it anymore, because Im tired of hearing about Facebook.

    /does not have a Facebook page

  30. Budala says:

    There is so much wrong with this story that it’s hard to know where to start.

    1. An IPO is there to raise money for a company to grow. Facebook is a well established company that has been around for several years. Their IPO was just to pay off the early investors.

    2. The price/earnings ratio for Facebook was and is still too high. The best company to compare it to would be apple with their sales on iTunes or google with their advertising. Facebook needs to grow their earnings a whole lot just to catch up to those companies, or as is happening now lowering the price of the share where it belongs.

    3. Facebook is out of ideas on how to grow the earnings, therefore it was the perfect time for a lot of early investors to bail. Let’s not forget that the same investors brought the company to that level and they need to cash to invest in other enterprises.

    4. Let’s not forget what happened to myspace when Facebook is evaluated.

    5. Whoever can buy 3000 shares of a company at $42 ($126,000 total investment) is diversified is not a small investor.

    6. Whoever does not diversify and puts all their money in one basket is a stupid idiot who deserves to get burned. Putting a lot of eggs in one basket was how chase lost those billions.

    7. People need to stop listening to CNBC for investment advice. Doing the exact opposite of what they tell you to do is usually the safer route. Nobody from them tv hosts knew the housing collapse was coming, most of their guests didn’t either. I remember the clip of Ben Stein saying that Bank of America is a safe investment only to see the stock tank 2 weeks later.

    8. Another investment advice is that if you don’t know how a company makes money then don’t invest in it, that worked great for Warren Buffett, who I bet owns 0 Facebook shares.

    9. I bet this information was available for purchase by anybody, but only the large institutional investors chose to do so.

  31. ronbo97 says:

    Waaaaaaa. Waaaaaaaaaaaaa. I didn’t make a killing on the first day. Thought I could pay off my mortgage by next week. Waaaaa!

    Except it didn’t work out that way. If you are a small investor, you buy stocks for the long haul, not to sell the next day. Don’t need to buy expensive inside reports. I just used common sense.

    Number of facebook shares owned: 0.

  32. brch2 says:

    Anyone who invests an amount of money they consider large in normal circumstances into a company they’ve done no financial research on is an idiot. I know almost nothing about finances, but even I knew from everything I read about Facebook leading up to the IPO that it was valued WAY too high, and that buying shares right off the bat was a horrible idea. Anyone who claims to be worth over $100 Billion, yet produces nothing tangible, and only brings in a few Billion a year from advertisements and petty game transactions, is full of it. Even if they have user information on somewhere between a half billion to a billion people (and their count of 900,000,000 users is really over claimed… it’s very unlikely they have 1 out of every 6 to 7 people in the world regularly using Facebook)… so what? The governments of the world, who are the ones that’d be most interested in user info (other than advertisers), are not going to pay for it… or at least not much, since they can access it just like everyone else, or else subpoena Facebook for it if they need it. And the advertisers are realizing that the ads are mostly useless… most of us refuse to click on them, and have ad blocking installed. Besides, as long as advertisers can set up free pages, there’s no need to pay for it, and even though they get less overall exposure from pages than ads, they get more likely purchasers with pages.

    Facebook is worthless, or at least nowhere near worth over $100 Billion dollars. Common sense should tell people this… just a little bit of research should confirm it, or tell those without common sense. Now, Facebook MAY have ideas in the future that will make them money and raise the value of the company. They MAY decide to start producing tangible goods of some sort. BUT, that’s not exactly likely at this point, and was definitely not a claim of something they expected to do before they IPO. So knowing these basic facts, anyone, especially anyone about to gamble months worth of pay on a stock, should have realized that shares were not worth $38 (and esp. not worth $40 something). Now the two options at this point are to keep the money invested and hope the stocks level out and gain a little ground back (though it’s almost impossible in the short term, and a heavy risk even in the long term), or to sell it all now and get out without losing more.Taking the risk could pay off in the next 5-20 years, or everything could be lost when the company fails… that’s the risk of stocks, esp. of overvalued stocks.

    Anyway, the point after all of that is… anyone that bought stock from Facebook up till now are idiots, and frankly deserve what they get. There may be a few people with the money that felt the long term risk was worth it, but for the majority that bought stocks it was an emotional buy, or a ‘thrill’ purchase (OMG, I OWN PART OF FACEBOOK!), or a hope at a get rich quick maneuver, or some other stupid reason. Frankly, these people deserve what they got, and all I can say is “better luck next time” and “next time, try doing a little basic research… and I’m talking about AT LEAST basic research for info that could be found online (www.giyf.com).