The Facebook IPO - I Don’t Get It

Most business days I have CNBC on in the background.  As you might imagine just about all that’s been talked about for the past couple of weeks is the Facebook IPO.  Prior to last Friday (the day the IPO launched) it was all about pricing and the pre-IPO road show.

Since all of the trading glitches on the first day, and the revelations that big institutional investors were told about changes in the company’s outlook while this information was not shared with small investors, this has been the dominant story on CNBC.

I get the fascination and interest in this IPO.  I also get the anger and frustration of small investors in the wake of all this.  What I don’t get is why any small investor would want to buy this or any IPO.  Some Lessons Learned From the Facebook IPO was the title of my most recent post for the US News Smarter Investor Blog.

To me the urge to “get in” on day one is analogous to people lining up for the midnight showing of the premier of a major new movie.  Why fight the crowds?  Why not just wait a few days and see the movie then?

For some it’s the fun of being part of the event.  A few years ago two of my kids went to the midnight premier of the last Batman movie and said they had a blast.

That’s all well and good for entertainment.  Investing is different.  Other than for entertainment (with a very small amount of money), in my opinion small investors should avoid trendy investments like this, especially at the IPO stage.  Over the long haul Facebook may well prove to be a great investment, or it might not.

IPOs can go both ways.  Google, the hot IPO of a few years ago, has proven to be an excellent investment for long-term shareholders.  Groupon, last year’s big IPO, has been a poor investment so far, down about 40% from IPO price.

In my view individual investors should focus on their long-term goals and an asset allocation plan to match those goals.  Tune out the noise, ignore the hype.

Nothing in this post or anywhere on this blog should be construed as investment advice in any way shape or form, just simply one person’s opinion.