The Investment Scientist

Facebook IPO: My Answer to a Client’s Inquery

Posted on: March 12, 2012

I am not a big fan of IPO shares. Research has shown that IPO shares usually underperform seasoned shares by about 2% a year. Business owners tend to time their IPOs at the optimal time for them, not for the future shareholders.

With Facebook (FB), there are so many people chasing so few shares that the IPO will create a “Winner’s Curse” effect – whoever wins the shares will end up overpaying for them.

Also, as a counterpoint to FB’s dominance, watch Google+. It is breathing down FB’s neck with 100mm users since launching last July. It is expect to end the year with 400mm users, half of what FB has now.

Social media users are unpredictable. Once it is no longer cool to use FB, they could quickly move to another social network. The road to FB is littered with corpses of past social network champs like Friendster.com and MySpace.com.

My point is, don’t get overly excited about FB. It rushed in like the tide, it could go out like the tide as well. However, if you want to spend less than $10k to try it, I wouldn’t object. A lot of time, investing in stocks is for fun and excitement. FB will definitely provide some excitement and great cocktail party conversation. To the extent it does not affect your financial big picture, I would say go for it.

Get my white paper: The Informed Investor: 5 Key Concepts for Financial Success.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.



You may also get his monthly newsletter, or join his Facebook page for regular wealth management insights. Michael's email is info[at]mzcap.com.

Twitter: @mzhuang

Error: Please make sure the Twitter account is public.

%d bloggers like this: