CNBC was kind enough to have me on this morning to talk Facebook with hosts Andrew Ross Sorkin, Becky Quick, Joe Kernen, and guest host Steve Rattner.
I love the Squawk Box crew–they’re a class act–and this was a fun discussion.
Steve argued persuasively that individuals shouldn’t trade stocks, a position I wholeheartedly agree with (To make trading profitable vs. index funds, you have to beat professionals day in, day out, which is much harder than most people realise. It’s easy to pick a winner here or there, but, over time, the losers and trading and tax costs really add up.)
We also talked about Facebook, which I’m generally cautious about. If I were managing a big, long-only mutual fund, I’d probably buy it, because there just aren’t that many companies with these global growth prospects that allow a professional to take a big position in.
But I think everyone else should approach it with caution, for the following reasons:
- First, it’s “muppet bait.” It’s hard to imagine an offering that has been more widely anticipated and hyped, so the chance that you have an “edge” is tiny.
- Second, Facebook’s growth is decelerating, and its profit margins have peaked. Until growth reaccelerates, it’s hard to see how the stock will sustain a major upward move, especially at the expected trading price (over $100 billion)
- Third, mobile represents a major change in usage patterns and a possible threat: Facebook is unlikely to be able to generate as much revenue per user from mobile as it does from the web, and the world really is going mobile. (Facebook actually just cited this in its latest IPO filing amendment).
- Lastly, to his credit, CEO Mark Zuckerberg has made clear that he is willing to sacrifice short-term performance to build his long-term mission. He has also said, amazingly clearly, that Facebook’s social mission is more important to him than its business. That is a three-alarm klaxon warning short-term investors away from the stock. Even if Facebook is as successful at building its vison as the similarly long-term focused Amazon was, there were many, many years in which Amazon was a lousy investment.
Here’s the clip:
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