Facebook: learning lessons the hard way (again)

Facebook was the most over-hyped issue I have seen in the past 20 years. That’s saying something, because new issue pump and dumps are the norm. I have literally witnessed dozens of new issues pass by my desk over the years. Truly, this one was right up there as the gold standard of insanity. Predictably it was over-priced at issue. Predictably those who were suckered in have lost money. And as is human, most are traumatized and reacting badly to the loss.

The truth is that those who thought they were buying into a “hot” issue were not investing, they were speculating. Whether they understood this or not. They were taking sales puff from the distributors as “investment advice”. Most could not afford the risk, and are hurt now by the losses. Even if the stock eventually recovers value over coming months or years, most of the initial buyers will have long bailed with losses rather than waiting for the price to recover. There is another valuable learning opportunity in this story for everyone who is willing to see it.

This article really summarizes the story well. See Facebook IPO costs mom-and-pop investors a bundle, while Wall Street scored big.

I understand that many people are broke and desperate to make a quick buck to beef up their savings.  Desperate people often do desperate things that end up only hurting them more.  It is tragic but typical.  What I don’t understand as easily is why so many intelligent, hard-working, educated, disciplined people, who have actually amassed sizable savings, still go to risk-sellers–banks, brokers, commissioned mutual fund sellers “financial planners” for their investment advice– staying in abusive relationships, even while they frequently leave one for another.  Apparently many people still want to be repeatedly hit by a hammer.  It is an amazing phenomenon to witness.

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2 Responses to Facebook: learning lessons the hard way (again)

  1. peter says:

    Is it a matter that if the JP MORGANs of the world does it, the small investors will to? Sadly they are too small to bail! Lesson? Maybe we should all be investing in those institutions that are too big to fail! It’s like a big bully! It is better to be with it than against the bully! Sad, isn’t it?

  2. Chris says:

    > Apparently many people still want to be repeatedly hit by a hammer.

    ROTFL. Though it’s sad that so many people get ripped off on this.

    Mark Hulbert has an interesting analysis where he says the fair value of a Facebook share is $13.80. Scary stuff for those who own Facebook — or who might own Facebook once NASDAQ finally gets around to processing those trades (but not the cancellations).

    http://www.marketwatch.com/story/facebooks-stock-should-trade-for-1380-2012-05-25?link=home_carousel

    —-

    “Science is the belief in the ignorance of the experts” – Richard Feynman

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