Why didn’t Facebook go up? Stocks only go up, right?!
I think Buffett’s wisdom is appropriate here:
We never buy into an offering. The idea that something coming out…that’s being offered with significant commissions, all kinds of publicity, the seller electing the time to sell, is going to be the best single investment that I can make in the world among thousands of choices is mathematically impossible.
In short, Facebook controlled all the variables that affect whether or not a stock sells at a value price. Thus, Facebook maximized the amount of money it could receive for the portion of the company floating on the market.
IPO are supposed to be fairly-priced. Rarely do you find that an IPO that sells for a depressed price because of the variables going into the sale. Facebook’s IPO was very different from other recent tech firms.
- Facebook floated a lot of stock at IPO, so it wasn’t subject to the same supply and demand constraints of Zynga, Zillow, and other stocks that popped on IPO date.
- Facebook wanted the cash. Facebook had every intention of sucking the markets for every dollar that they would give. The company raised some $11.8 billion at IPO price, which was, at this very moment, 33% higher than those shares are worth right now.
- Facebook already IPO’d, basically. SecondMarket, a “stock exchange” for accredited investors, already granted the opportunity to buy into Facebook to large investors. Those investors did not need to pick up shares at IPO. The IPO was all about bringing the issue to retail investors – you and me.
- Individual investors in the aggregate are not better judges of a business’s value than investment bankers. In much the same thread, I am not nearly as good of a surgeon as someone who does it full time. Hence, I would never be so silly as to start cutting into a friend and call it medicine.
Please, for the love of all things holy, don’t play IPOs. And to take it even further, don’t play growth stocks, especially not large cap growth stocks. History proves how easily investors get burned with growth stories. Not surprisingly, it’s the small companies priced for no-growth that give investors the best return in the long-haul:
Please note the scale of the chart.
Be back tomorrow with another post. Just a thought I wanted to share.