Facebook Buyers Deserve To Lose

I received more questions from readers and friends about the (previously) pending Facebook IPO than any other investment topic…ever. 

A disconcerting number of people wanted to know whether I was interested in buying shares, and whether they should be adding Facebook to their portfolios.

At parties, at work, and via email, I answered the same questions with–I’ll admit–a bit of frustration.  The odds were against Facebook stock doing well; it was something I thought everyone should know. 

But the number of queries I kept getting convinced me to teach this lesson to a broader audience.  So I wrote this for Canadian Business.

I hope it prevents you from ever considering investing in IPOs.

Read my Article

Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School and Millionaire Expat: How To Build Wealth Living Overseas. My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions.

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4 Responses

  1. What? You don't think fad stocks selling at a PE of over 100 are bargains?

  2. Poor Student says:

    I agree that Facebook should have been seen to not be worth $38. But Jason Zwieg in the most recent update studied it and stated that if you could buy every IPO and sell it at the end of the day you would make a very healthy return. After that first day lots go plummeting, but it can be a smart move for traders. Even Facebook got up to $42, if you could have gotten out then it would have been smart. Unfortunately not many individual investors can get a stock right when the IPO opens.

    • Poor Student,

      Thank you for mentioning Zweig's article. I'm a big fan of his writing. There's a problem with trying to take advantage of this anomaly, however. I'll admit that I have not seen Zweig's piece, but the moment people think that they can buy an IPO, sell it at the end of the day, and bag a profit, then they won't be able to do it anymore. If we were to pressure Zweig to give us more, I think he'd tell us something like this: Once the masses (or a very large number of people) catch on to a statistical regularity (or irregularity) their future purchases and sales would dictate that it won't happen anymore. So….where does that leave us?

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