Facebook IPO

EVERY single IPO that has ever been done had the original private owners give up a percentage of their shares for cash. That's the whole purpose of it. They own 100% of the company before the IPO. They cannot own 100% of the company after the IPO.

 

Not true, FB offers a venue for advertising. The much harder question to answer is whether FB's billboard has any better value than the competitors.

FB also is an efficient social vector, but turning that vector into money for FB, meaning more money for advertisers, is far from obvious. As an example, think of this forum as a social network, with a few people wielding greater than average influence over the buying patterns of the group. When F8L originates a thread of LRR tyres, those select few tyres gain a competitive advantage. However, it is quite doubtful that manufacturer advertising on this forum made any difference to F8L's recommendations. Just the opposite is true: if adverts had influenced F8L, his opinions would carry much less weight.

Admittedly this forum tends to be data driven more than other consumer behavior in general, but I think the same paradox stands: the influential members of the group are relatively advertising independent.

 

True, but completely misses the point:

If the procedes from the IPO go into the company, (and if they are used wisely by the company) then the value of the company increases by the amount of the procedes. The original owners now own less than 100%, but 50% of two million is the same amount as 100% of one million. The owners in this case are expressing confidence in their own company by bringing in new investors in order to expand. They are not getting rich. They are sticking with their equity and betting on the success of the company by an infusion of new capital into the company.

If, however, the procedes of the IPO go into the pockets of the original owners, then all they've done is sell off equity in the company. The company remains the same size as before, and the owners have backed out of part or all of their personal stake. A cautious investor can ask "Why should I buy into a company that the founder is trying to get out of?" The founders may have a good reason: Medical emergency, retirement, desire to start a new company based on a different dream. Or the founders may see the company as a dead end and want to cash out before the bust.

 

"The original owners now own less than 100%, but 50% of two million is the same amount as 100% of one million"

You're making it sound like the "good" owner gets no money which is totally false. He is still cashing out part of his ownership at the time of the ipo. A portion of his stock will be restricted from sale for a specified period, but he can take any amount of money he so chooses as a condition of the ipo. I can't imagine any owner giving up control of his company to a board of directors just for what is basically equivalent to a loan.

Personally I would rather have a company that doesn't need the money to continue in business as opposed to a company like Tesla that could eat through that money quickly.

Believe me, if Facebook was valued fairly it would be a great investment. Companies will choose to invest with them because it gives them much better target marketing than google can provide. No one at this time can get to as many people as Facebook.

 

Tesla is a new company just getting started. Like any new company, it needs capital, and like most start-ups, it needs more investment capital than the founders can provide. Its success is by no means assured, but if it does succeed there is potential for significant gain.

You should not invest in Tesla unless you have a high tolerance for risk, and a high tolerance for wild price fluctuations. Institutional investors have their own reasonings, which I never understand. Individual investors who buy Tesla stock usually do so because they want to support the vision of the company. Which would you rather support: A company whose vision is to provide teenagers a venue for gossiping about their friends and journaling about their day's trivia, or a company whose vision is to demonstrate the viability of electric cars and to build and market an affordable electric family sedan in 3 or 4 years?

You don't invest money you cannot afford to lose in a start-up company of any sort, but I'm happy to be a part of Tesla in a small way by taking a chance with some money I can afford to lose if it comes to that, but which I expect not to lose, as I see great engineering and management skills there.

I would never put the money I count on, that I cannot afford to lose, into ANY individual stock issue. I'd consider that unacceptably risky. Nearly all my stock holdings are in mutual funds, where the fund managers know a lot more about stock picking than I do, and I'd advise anybody who asked me: Never buy an individual stock issue unless you have reasons for wanting to support the company. I support Tesla because I love my car, and because I want to see more electric cars on the road, and Tesla builds nothing but electric cars and electric car drive trains.

 

Now the above is a very easy question to answer. I am going to choose the company that gives me the best chance of increasing my portfolio value. I don't invest money for any reason other than making more money.

Right now Facebook is way over valued so it is not a good investment at this time. This is why the owners are selling, The stock price gives the company a 100 billion dollar valuation. They know it might take 8-10 years to get the company up to its current valuation so why not sell now? I will be watching it, and when it gets to a level that makes sense, and when it's chart has had some history (at least 6 months to a year), I will buy some.

I think Elon Musk is a real visionary. I want him, and Tesla to succeed, but I would never put a dime into his company until I could be fairly certain the company can make a go of it. Personally I don't think the company will make it, but it won't take too long to find out.

Hopefully there won't be a lot of people that will ask you for investment advice, because that is not investment advice, that is social advice. Your support of Tesla is for social reasons, not making money. Believe it or not 99.995 percent of people who invest in a company do so because they expect a greater return than they put in. If those mutual funds that you depend on invested based on the above advice you would fire them.

 

Lmao:

STOCKENFREUDE : That feeling you get, as someone who loathes Facebook, seeing FB shares crap out post IPO.


No more underwriters supporting price floors = 20% dip (in two days!).

 

I think you didn't read my post. If you had, you would have seen that:

I said NEVER BUY INDIVIDUAL STOCKS UNLESS YOU HAVE A NON-INVESTMENT REASON TO WANT TO SUPPORT THE COMPANY.

Then I said that I put a little bit of money in Tesla BECAUSE I SUPPORT WHAT THE COMPANY IS DOING.

And contrary to your exaggerated 99.995% figure, there are people out there who are willing to take a chance, investing in new companies, knowing that some will fail, in the hopes that others make it big.

There's nothing wrong with investing the way you do, only in companies you are certain will make money, but unless you have inside information, you're likely to do worse trying to pick stocks on your own than buying mutual funds, which spread the risk.

And FWIW, some pretty smart people think Tesla is a good investment. The analyst recommendations are mostly buy, and I think there's one recommendation to Hold. Wunderlich made news when they upgraded Tesla after visiting the factory where the Model S will be built. It was touch and go for a while, but they pulled through the hard times and look to be on the way to success. They are, however, a very volatile stock and their success is not by any means certain. If you only buy sure things, don't buy Tesla. If you have some risk capital to invest, Tesla is a good choice.

 

I agree with HaveNoCents and I think that is bad advice. You don't have to be emotionally tied to the company you invest in. For example, I bought Sirius XM Sat Radio (SIRI) a couple years ago. I hate Howard Stern and I don't even have Satellite Radio in my car, but it was cheap at the time and I believed the price would go up because Sirius has a monopoly on satellite radio.

 

Of course I did. You said:

And I said if your mutual fund managers used the above advice, and purchased stock because they felt they had reasons to support the company(which suggests other than financial), you would fire those managers. I totally stand by my statement.

Now that is not what I said at all. I did not say don't take a chance, I said 99.995% of people who invest in companies invest because they believe they will make more money than their original investment. How can you possibly disagree with that? This is not charity, or venture capital.

Totally inaccurate. It's like anything. If you take the time to learn you can do better than most mutual funds. NO INSIDE INFORMATION REQUIRED". People that make the inside information claim are often people who have tried and failed. Since they were unable to be successful they feel no one can be successful.

LMAO, now that was funny. I would love to have a nickel for every time I have heard that in my lifetime.

 

Facebook shares sink 11 percent as reality overtakes hype - Yahoo! Finance

Facebook shares sank 11 percent in the first day of trading without the full support of the company's underwriters, leaving some investors down almost 25 percent from where they were Friday and driving others to switch back to more established stocks.

 

I can't get excited about price changes over a single day. People who trade stock ask for trouble. People who own stock are a different story.

Stock was intended for partial ownership of a company. Day trading is an unavoidable but unsavory side effect.

Tom

 

Wow!! Where do thoughts like this come from? Unsavory?

 

I thought it might be fun to fiddle with 100 shares as an IPO experience.
But I did not get any as usual.
In the end it was not a fun IPO to fiddle with (did not go up up up). :violin:

 

They come from the same place as my thoughts about political parties. George Washington worried that political parties would be the undoing of our government, but he acknowledged that there probably wasn't any way to stop them. They hurt the democratic process, not help it, but are an unavoidable outcome of our system.

Likewise with day traders and short term speculators. They aren't useful, other than for other day traders and short term speculators. They don't provide long term capital, nor do they provide insightful ownership. At best they might be a short term buffer, but even that is a dubious benefit. Mostly they are an unavoidable artifact of our current stock market system.

Tom

 

Without traders and speculators there would be very little demand for anything. Yes the speculators may cause wilder swings in the market, but without them there would be no market. The market needs speculators to move the price. What you are basically saying is capitalism is unsavory. I would have to strongly disagree with that.

 

I agree that daniel's investment advice when it comes to stocks is terrible. I love TiVo as a product (been a user since 2001). It's a terrible investment. Sure, loving or liking a product might get one inclined to explore more details about a company and heck, maybe I'd like to invest to "support" the company, but it's a terrible stock picking strategy.

Long ago, when it comes to investing, I decided that I don't care what the company does. Even if the company is evil, makes products that harm people (e.g. cigarettes), etc. I don't care. I'm investing to make money. If there's a good opportunity, it's a good trade from a technical point of view, it pays a decent (and safe) dividend, etc. (whatever criteria it meets), then I'll consider it.

As for analyst recommendations, I learned LONG ago (the hard way) that looking at how many analysts have buy, hold, sell, neutral, etc. as a means of picking stocks is a TERRIBLE method. I've been burned very badly by that. During the .com bubble and crash, analysts were reluctant to ever downgrade to sell. Many were still bullish when stocks were crashing.

If they downgraded, it almost always sparked a crash in itself or was way too late.

Yeah, and there'd be little supply. Traders and speculators provide liquidity. If there was nobody to buy when you wanted to sell, then what? The opposite is true as well.

However, unfortunately, high frequency trading now makes up most of the trading (watch Wall Street: The Speed Traders - 60 Minutes - CBS News, if you want more insight). Their presence is somewhat questionable though...

 

Isn't virtually everyone a speculator? As far as I can tell, the only difference would be the time frames of speculation.

I've sold most of my stock for the simple reason that I did not want to be a speculator. I could not figure out a way to be in the stock market and not be a speculator.

 

Yes, there is a problem right now with HFT. This has a larger effect on day traders than it does with swing traders or investors. Black box systems never work over the long term. The high frequency traders will take a huge hit, and some major hedge funds will go belly up. This has already happened this year.

Of course some other black box system will be developed, and the process will start all over again. Everyone is searching for that Holy Grail, but it just doesn't exist in the market. As soon as you have an edge the market will take it away from you eventually. I have to revamp my systems on the fly.

The thing that will have a more adverse impact on the market is what is known as dark pools. Something has to be done about this, but it is the buying and selling of stock outside of the actual market. There used to be ways to determine when a stock was being accumulated by large institutions. The small investor could ride the stock up while the big boys were buying. With the advent of the dark pool this is no longer the case. Now stock is traded without going through the market. The ownership changes hands, but there is no record of the sale that can be seen during the open market hours.