The Investment Scientist

Posts Tagged ‘Facebook IPO

Facebook Winners’ Curse

Back on April 9, Mark Zuckerberg announced that Facebook had agreed to acquire Instagram for a jaw dropping $1b.

What is Instagram? It is an iPhone app that allows people to swap photos with friends. The one and a half year old company has about 16 employees and its revenue is a cool zero.

Most commentators said that Zuck was either trying to pre-empt a potential competitor or to expand in the mobile market where Facebook is weak. There is nothing Instagram does that Facebook cannot replicate, make available to its 900 million users, and instantly kill Instagram. Why pay $1b for something that is essentially worthless?

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New York Stock Exchange

Value investing as an investment discipline was pioneered by Ben Graham and is practiced by Warren Buffett.  It has a long history of data collection and many rigorous studies done in the most prestigious research universities.

The idea of value investing is that undervalued stocks will ultimately outperform overvalued stocks in aggregate.

There are four simple measures one can use to determine if a stock is relatively undervalued or overvalued….

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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