Facebook History Lesson

By Kyle Metivier - May 23, 2012 | Tickers: FB, LNKD, NES.DL | 0 Comments

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What did we learn about the Facebook (NASDAQ: FB), IPO? First, nobody honestly cares about the retail investor unless you pay them to care about you. Second, a vast majority of advisors still don’t care about you. Third, it isn’t necessary to “dress for success”.

Let me get a quick point across (probably the only one on the whole page), I don’t care for the term, “retail investor”. It’s like we go to the mall or the grocery store to “shop” for stocks. “Honey, could you pick up some IBM?” I prefer “individual investor”, even though it is phenomenally popular now for every “expert analyst” to declare there is no way for a single individual to understand a company’s true valuation. Apparently it takes a room full of finance degrees and series 7 licenses, but at times it doesn’t look like they know, either. Feel free to pay them to make your investing choices for you, though.

If you were one of the unfortunate individual investors that snapped up a few shares of the latest fad-lottery-ticket IPO stock and experienced the misfortune of having your eyebrows singed, I truly hate that for you. I can’t say that I didn’t try to warn you. Twice. But I wasn’t the only one, that’s for certain, so I’m not running around celebrating on the backs of anyone that “lost” on this deal, like some folks are. I don’t root for a company’s misfortune, even if I saw it coming (Netflix). One day makes a trade, but not an investment, so not all hope is lost. Unfortunately hope won’t pay for a loaf of bread.

So now we get to bandy about the flood of news that Facebook execs told certain select banking types that there was a growth slowdown, GM, pulls advertising from Facebook because they cannot ascertain the effectiveness of it and Morgan Stanley (NYSE: MS), receives a shiny subpoena to add to their wall of impressive degrees. All for talking bad about their prom date to the boys as they were on their way to the big dance. The boys in the locker room at Morgan Stanley might be feeling a little envious, since Facebook’s market cap is more than three times theirs. It’s enough to make you give up, isn’t it? I understand the feeling, I really do.

Once Facebook’s opening trading range was filled with empty confidence, like the potential princesses on “Toddlers and Tiaras”, I became even more uneasy, even though I had previously expressed that sentiment on more than one occasion. Now everyone, including the Donald (Trump), is applauding the effort, while a lot of folks are left wondering why they lunged at the shiny lure at $42 a share. Again, not all hope is lost.

There are countless opportunities on the horizon, and the same is true of Facebook, provided the direction of the executive team gets their collective acts together. The acquisition of Instagram for one billion dollars didn’t do much for my appetite, and that was before the IPO. With the incredible wealth of resources at your disposal, if you dumped your life savings on this stock, shame on you. If you dedicated an uncomfortable amount of hard-earned dollars, thinking you would see a daily double, you should rethink your investing strategy. Immediately, if not sooner.

So now the hawks are circling the offices at Morgan Stanley, as lawsuits will be lined up at the door, with Facebook shareholders apparently prepared to have even more of their money removed from their accounts. Suffice it to say, I am not a fan of our litigious society, as something that resembles a grown-up, I accept responsibility for my actions. If you have a legitimate beef with your financial advisor, fire them and move on and start fresh. For me, closure doesn’t come with a pennies-on-the-dollar judgment that I am forced to share with lawyers. But you do what you feel is right. Morgan Stanley is trading almost a whole dollar down from Facebook IPO-day, roughly 6% off the highs of the day, Friday, May 18. And with a swelling majority of media-types smearing their name as if they were a high-school bully, don’t expect much in the way of a quick reversal.

Meanwhile, as LinkedIn (NYSE: LNKD), celebrates their one-year anniversary as a publicly traded company, history constantly reminds us how quickly these things can get out of hand. Not every company bolts out of the trading gate, once the excitement wears off we get to witness what they truly are. On opening day they opened at $83, reached a high over $122 and closed a quarter over $94, with over 30 million shares trading hands. LinkedIn has since gone about their business, experienced ups and downs, and it’s moving on rather nicely, all in the short span of one year. Their historical trading range (low $56, high $122), will make an adult out of anyone that bought and held this stock on its open, and that’s where history continues to splash cold water on our faces. With this stock, had you let the “pros” get in, get out and move on, after one month’s time let the company find its legs, we could have snapped up shares around $70. A mere month after they opened trading. A nice 40% gain at today’s prices hovering just under $100 a share.

Listen, I have been guilty of snapping up IPOs at their open, and I have openly shared those shameful moments. I won’t do it again. There’s nothing wrong with waiting to see how the company truly acts after the IPO party is over. You wouldn’t get married after the first date, would you?

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