Facebook: Smart Money or Faceplant?
J. Keith is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It’s been said that money goes to where it’s best treated. But the fact of the matter is, this is often not the case. For instance, investors flocked to the Facebook IPO (NASDAQ: FB), making a big deal out of a stock that was being offered in excess of 100 times earnings. This is on a stock for a company that doesn’t really “produce” anything. It’s based entirely upon both building and fulfilling a social need.
As the IPO rolled out, I commented that puts would have been the best investment in Facebook. If I had only been able to pick some up, it would have been my best trade in May.
Apple (NASDAQ: AAPL), on the other hand, makes things. They make computers and all sorts of gadgets that, while not necessary, certainly can add to our quality of life and productivity. The amount of convenience and increased productivity offered, if used wisely, make Apple a very valuable company. This is why it trades at a very respectable 17/1 P/E ratio. Increased stock prices and dividends can add to this value as well. And if you know how to sell calls on your stocks, you can profit even more handsomely. Karen Rogers offers an excellent comparison of the two.
Mark Zuckerberg pulled off what few have ever done. In less than a decade he went from stirring things up as a college student to becoming a multibillionaire. Now, by selling part of the company off in an IPO, his timing may have been about as good as it gets. Facebook’s popularity isn’t going to drop off significantly in the near future.
There are some folks who aren’t enamored with it, especially knowing that all of their Facebook information is stored and shared with the government (even what you delete is retained). GM announced recently that it’s ceasing Facebook advertising due to lack of results. It seems that more folks are simply abandoning their accounts, or deleting them altogether, due to privacy concerns and sometimes even being overloaded with trying to keep up. If that’s not bad enough, a class action lawsuit is being filed, accusing Facebook of fraud in its handling of the IPO. See if you qualify here.
Facebook is a fad. I believe it’ll likely fade eventually, though it may last forever due to some of its uniqueness and uses. But the massive wave of popularity that it’s bred will likely diminish over the next few years. This adds to Zuckerberg’s timing. By selling now, he’s made billions when he might have only made half billions if he waited. Even if Facebook drops down to a more reasonable $10 per share, the young man is set to live a life of ease and luxury. Hopefully it won’t destroy him.
Is Facebook where money is best treated? While traders and owners will cash in big on this, most investors will likely end up holding shares that won’t see these levels for a long time, maybe even decades; especially adjusted for inflation. Except possibly for short-term trades, Facebook isn't a buy until it drops to single digits.
On the other hand, I'd be remiss if, as the Gold Informant, I didn't point out that gold is much more likely to be the smart money.
For your prosperity,
J. Keith Johnson
The Gold Informant
The Gold Informant is a Goldco Direct affiliate writer.
The Gold Informant is long precious metals and may own or initiate a position in shares mentioned at any time. The Motley Fool owns shares of Apple and Facebook. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
