Every pre-ipo investor in Facebook did awesome. They could give a shit that you lost money. And why should they? They have no responsibility to you. And Facebook was founded by scrappy Harvard kids who weren't motivated by money? Right? It's not like the people influencing them were giving pieces of the action to the biggest investment bank in the world, hedge funds who were able to curry favor, and Russians you've never heard of? Right? Thank goodness they all stepped into that void and helped infuse the fledgling company with 500Mln+ users and tons of cash flow.
Sadly, in late 2011 and early 2012 a few friends and less savvy colleagues waited till they got me in private and told me,
"Listen, I don't invest, but I think the facebook IPO is going to be big, how do I get shares of this?" of course got mauled. I love how they kept it hush, like they had some kind of edge just knowing there was an ipo coming up.
This couldn't have been telegraphed any better by Wall Street. More people opening full service brokerage accounts (the only way to get shares for most people), Yes! Uninformed masses to pump up the books so they can make as big an offering as possible? Yes! Monster investors lay off half or all of the pre-ipo investors in FB shares into someone else's hands just in case the company really isn't worth $100bln? Yes!
The $16Bln IPO got cut in half while the market is up a little over 5%. Was it mis-priced? Absolutely not. It was underpriced. Do you think they were having strategy sessions at the hundreds of offices of Morgan Stanley Smith Barney in Mid-May to figure out "how are we going to unload the flood of FB shares we're on the hook for on our clients"? Who wants to bet how many clients finally had enough and wanted to fire their brokers because they were getting no FB love? What I'm trying to say is the deal was massively oversubscribed. The bankers and the company probably could have gotten more shares done, but it was already the largest tech IPO ever, and looks like they used the entire corporation (companies do not offer shares for 100% of the company to the public) value of $100Bln as kind of a bogie.
So why on earth didn't it work out? Because the large institutional investors (which includes the people who handle your 401K money) may have pared back their allocations after a better look under the hood that the foolish individual investors didn't bother to see (or did they actually expect their dealer to tell them?). These institutions are called "the buy side" or "long-onlys". You know why? Because they don't sell their position in stocks (*until of course they break a dollar, go bankrupt, or some other corporate event). So as the long-onlys pared back their wishes for shares in the IPO, the shares went into more shaky hands and they bailed when the IPO broke price (usually a good idea, since IPO's that break usually don't do great). The rest is history.
When I read that after the initial lock-up expired for more shares to get sold into the public that Facebook's earliest investor, and current director, plowed out of the majority of his shares, I was disgusted. He knows how shitty that looks- but he has every right to sell anything he wants. He knows the chances exist for of some kind of huge market correction in the near future or secular decline in tech valuations might occur soon.
But I don't hate the player. Hate the game. Or just play it without wool over your eyes. I'm working on it.
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