If you are reading this online, then it is reasonable to believe you are aware of the Facebook IPO drama all around us. Be it on on financial news websites, or even CNN or Drudge Report, the headlines are all about Facebook, in particular the pending lawsuits against anyone involved, and the drama of being down 15% in a matter of days if you purchased the stock in the initial offering, or more if you bought it on first day of trading.
Like it or not, the underwriters, Morgan Stanley and others did an AMAZING job of getting the most value for Facebook. Unfortunately, the people who bought into the hype, or those trying to make a quick buck got hosed. For the first time since the tech bubble of 2000, all concepts of Value flew out the window, and the only thing the consumers were paying attention to is the name and the hype… “Facebook.” The fact that the stock was coming out and being 10 times, yes, 10 times more expensive than the rest of the S&P listed companies was not on the minds of your typical investor. Market capitalization, cash flow, and other financial ratios did not matter, only the name and the stock price.
I must say I do have mixed feelings about this one. On one hand, a lot of consumers got hurt. They bought into the hype, they bought the stock at the open, they then saw it start going down from $42 to $32. Maybe a few even sold and locked in that loss. On the other hand, this is a perfect example, yet another one, of why people should work with a financial professional… one that has your interests first. (Fiduciary Duty). At the very least, a financial planner, or to a lesser extent your broker or investment advisor would question your desires and examine if such an investment is in your best nature.
One horrible story I have run across was a person who was so excited about Facebook that he invested the vast majority of his retirement assets in Facebook. That one move alone has done more harm financially in the short term, than any bear market on an annualized basis. No matter how “surefire” an investment may seen, unless it has a guarantee, it is not wise to dump all your money into it… be it gold, silver, Florida real estate, or Facebook stock. Any financial professional with integrity, would stop you from doing such a dangerous move.
Does this mean Facebook stock will never get above the IPO price? Absolutely not… however this is a reality check and a perfect opportunity to do an unbiased checkup of your emotions in your investments.
Attached below is a fantastic piece put together by Janus Investments discussing how emotions may impact you during a market cycle, and how those emotions typically come at the worst time. Link is below. Please feel free to share this with those whom you think will find it of interest.
Trackback from your site.