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SEC Calls For Review of Facebook IPO
beaverdownunder writes "After losing another 8.9% of its IPO value in its third day of trading, SEC Chairman Mary Schapiro has called for a review of the circumstances surrounding Facebook's IPO on the NASDAQ late last week. Unable to sell Facebook short, investors have instead taken to short-selling funds that owned pre-IPO shares as revelations come out that the underwriters involved revised their Facebook profit forecasts downward in the days before the offering without similarly revising the opening share price. Meanwhile, Thomson Reuters Starmine has come out with a post-party Facebook estimate of a meager 10.8 per cent annual growth rate, valuing the stock at a paltry $US9.59 a share, a 72 per cent discount on its IPO price, signaling that the battered stock may not have found the bottom yet."
That's pretty well the whole point of this operation, letting the senior people cash out.
Right. The insiders sold $9 billion in stock. Facebook, Inc, only raised $7 billion. Accel Partners sold about 25% of their Facebook stock. DST Group (Russia) sold 37% of theirs.
Facebook is probably worth around $10 a share. Even that assumes 10% growth for the next 10 years, which is rather good. It's entirely possible that Facebook may not be a big deal as social moves to mobile.
The stock market is like a casino where the odds favor the customers. Overall, investors on the stock market make money, however, some investors will lose money.
In this case, however, the decks were stacked against the small guy. Some people had inside information that Facebook's financials were not likely to be as good as the rosy projections that were made public. That stinks and, until a lot of bankers and analysts go to jail for such actions, it won't stop (a tiny number of people are prosecuted, most pay a fine that is broadly the same as their gains, so no real loss and an even smaller number of people go to jail -- but the number is too small to make individuals think there is a realistic chance of them going to jail for inside trading).
The real "Libtards" are the Libertarians!
My feeling is social sites are like restaurants. They have a fashion clock. Players in the F&B biz sell a popular restaurant after 18 months. They know that it will come off the boil. The in crowd will move on. They have to... in order to stay in... Myspace anyone?
Facebook will be history in five years. It is a walled garden. Relief is just a click away... a click away. All it offers is a kind of critical mass. And the market knows it.
And shows it.
"No fear. No envy. No meanness." Liam Clancy
Generally speaking (and ignoring FB which I've already commented on)... but generally speaking this is NOT true. The small guy actually has the advantage in this market, which makes it ironic that the small guys have mostly abandoned it.
The big guys have been fighting amongst themselves since the crash and it has created lots of opportunities for smaller retail investors to find really excellent entry points. Simply put, the reduced liquidity in the market gives the advantage over to the smaller players whos trades don't move stocks while the bigger ones get stuck fighting each other.
It used to be that 'dumb money'... a euphemism for the 'retail investor', gave the markets enough liquidity to allow the bigger players to enter and exit positions without excessively moving stock prices. These days with the big boys playing against each other and reduced liquidity it's more a matter of one big boy outwitting another because their trades move the underlying stocks too much. The small guys can take advantage of the much more obviously oversold conditions to buy, and overbought conditions to sell. The big guys can't.
The problem that a lot of retail investors have is that they don't actually know how to invest... they think they are investing when they are actually just day-trading. They pile into dangerous spaces that have already built up momentum to the upside instead of buying when they were low. For example, smaller players are STILL piling into the muni/govt bond markets even as we speak despite the huge risks involved as the Fed QE2 ends. Most retail investors sell during the inevitable pullbacks in these spaces (instead of selling during the rise), or buy well after a security has risen (instead of when it was closer to the bottom and still falling). They believe the crap that is fed to them by the media, believe the hype, believe the stories written by 13 year olds or guys with fancy titles and obvious conflicts of interest, and don't bother reading the financials of the companies they invest in or even listen in on the conference calls.
It doesn't take all that much work to actually invest properly, it just takes a bit of patience and a minimum of a medium term view (instead of a short-term reactionary view). The best investors in this market aren't the idiots who day-trade, it's the people who might do one or two small trades a week, maximum, slowly working long-term positions and collecting dividends while the big boys rattle the market back and force and provide the great entry and exit points.
The deck just isn't stacked against us, people only believe it is.
-Matt
Probably, but that price is probably about 0.002.
If the bankers did their job, an IPO should fall below it's IPO price at some point. The IPO (and secondary offerings, and warrants, and employee stock options) are the only time that the company makes money from the sale of shares.
A company that goes public rarely puts out any news that would cause the company to go up in value for 90 days after the stock goes public. Therefore if the stock goes up significantly from the IPO price in the 90 days after the IPO it is almost definitely because of a wink shake agreement between management and the bankers to bleed money out of the company to investors at the expense of the long term health of the company.
No matter what happens to the stock price, facebook put $8,000,000,000 in its bank account. If the price had been lowered to 16 Facebook would only have raised $4,000,000,000 and would be in a much worse position financially, despite the fact that everyone would be going on about how great the stock was doing.
IPO's that pop like in the dot com days are the sign that the company is actively being looted, and probably won't make it as a public company very long.
The question of whether or not you think Facebook is a good investment or not is whether or not you think that they are going to successfully use their cash to figure out how to make money off of their mobile users.
Work bio at MMWD
Arguably the money will be made at the expense of the brokers like Morgan Stanley who stepped in to prop up the share at launch and bought up billions of dollars worth.
The mistake they made was over-estimating demand and releasing too many shares. A smaller float could well have become a feeding frenzy - not that I think it's worth thirty bucks a share, or whatever it sinks to today either.
This is the culture in Scandanavian countries, who have been at the top end of the standard of living charts for a very long time now. It's also a common* attitude here in Australia and we rank high in those charts, (*common but not the prevalent one, which is closer to UK culture ). It was also a common attitude in the US until the 1970's when, as the song goes - "We all got stoned and driffted away".
At 50+ I've seen the political pendulum swing a few times but it's slow on the scale of a human life time, the spring driving it even unwound a bit with the civil rights movement, the disintergration of the USSR and "Gang of four" in China. Yet internet forums across the planet are chock full of angry young men who would tear all that down and start again because they don't like (say) the current IP laws. I may be wrong but I think I can understand where they are coming from because I was an angry young man once,whereas they have yet to fully experience actually "seeing it all before".
Having already made myself unpopular with at least half of slashdot I'm going to alienate the rest of you by saying that this attitude was also displayed by both Bush and Obama when the GFC exploded in their faces. They set aside their ideologies to take unpopular and decisive joint action that in my opinion avoided a global panic run on bank deposits and the subsequent great depression senario that would follow. For a trully serious problem they put society first and I think history will eventually thank them for it.
To head off any angry young men posting BraveHeart style freedom rants on my lawn. - You are alreay free from everything except consequences. Nature (AKA -The great JooJoo in the sky) intended it to be this way. Just like Ayn Rand, she does not care about your existance any more than a road train cares about the bunny hypnotized in it's headlights
And did you exchange a walk on part in the war for a lead role in a cage? - Pink Floyd.