Well, the Facebook IPO has happened and investors, apart from those that were in before the IPO, have lost money and they are looking at who to blame. A 20% drop in the first few days is not a good sign although it does seemed to have stabilized at these levels. There are some pundits out there that are telling us – “this is OK. Amazon went down at first, but look at what it has done since then.” Others take the other side, saying this is just another example of investor eagerness at Internet vaporware. Investors expected that they couldn’t lose money and because that has been proven to be false, are upset. Others are claiming that the underwriters were not totally honest and withheld information. OK – let me just ask: did any of those who bought at the IPO actually read the prospectus and believed they were making an informed decision? Of those, who were investing in the long term prospects for the company rather than wanting a quick gain from the stock?
We have seen this happen time and again, and yet nobody seems to have learned from their mistakes, or at least because they are embarrassed at their previous failures they forget the losses and brag about the successes – oops I mean luck. Why would anyone invest in an IPO when it is almost certainly going to present better buying opportunities when more of the stock becomes available such as when the insider shares begin to have less restrictions, and the hype has subsided. If you really believed that there will never be a better price, then you would be overjoyed at the 20% decline in the stock as a buying opportunity to average down.
One thought that crossed my mind is that if I were a lawyer, I could play both sides of an IPO. If the stock goes up – great, money in the bank. If it goes down, be ready to slap lawsuits on people and get the business associated with creating a class action lawsuit. It is amazing how quickly after the IPO certain things are discovered. Maybe if investors had done the same amount of work beforehand, they may not have invested.
Lastly, the prospectus used to be called a Red Herring. Perhaps we should remember that next time a big IPO comes along, especially one that is based on future promises rather than a proven track record. I will not be interested in Facebook until they have proven that they can grow their revenue stream in a sustainable manner and can handle the migration to mobile.
As you can see, I have little compassion for trading losses. Do you believe that the small guys are left out in the cold?Brian Bailey
– keeping you covered
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