With the Facebook IPO only days away from pricing, anticipation is building.And some otherwise smart people are going insane.
Shayndi Rice and Joe Light of the Wall Street Journal are tracking a few people who are hoping to get in on the action.
One of them, who runs a school investment club, will be buying so few shares that it doesn’t matter what happens, especially since the club plans to flip the shares instantly (so much for “investing.”) Another, a professional money manager named Chris Baggini at Turner Investments, knows exactly what he is doing, and will be investing at the IPO price through highly diversified technology funds. So both of those stories are fine.
But one of the would-be investors Rice and Light are tracking has a frightening story:
Rockville Centre, N.Y.—Jim Supple was driving with his daughter Jade last autumn, when she turned to him and said, “Daddy, can I buy some of the Facebook company?”
Mr. Supple, 47, had been teaching Jade about investing in the stock market for years. He started putting money for her in stocks like eBay and Disney when she was a baby. But the request still took him aback. “How do you know about buying Facebook?” he asked.
“I saw in the news that they were going to be selling parts of the company,” she responded. “Can we buy some?”
Since then, Mr. Supple has been trying to find a way to take $25,000 he has saved for her college fund and purchase Facebook stock. “She doesn’t need this money for another eight years,” says Mr. Supple. “If it goes the Google route, I’ll be in good shape.”
Yes, if Facebook goes the Google route, Mr. Supple and his daughter will be in good shape. In fact, they’ll have paid for her whole college education, and then some.
But if Facebook goes, say, the Netscape route, or the AOL route, or the Yahoo route, or the Groupon route, etc., Mr, Supple will have gambled away most of a year of college.
Facebook’s IPO isn’t anywhere near as speculative as some of the early-stage Internet companies that have gone public over the years. But it’s still speculative. And unless it’s bought and held in a highly diversified portfolio, it’s no place for a college fund.
The odds that Mr. Supple and his daughter have any more insight into the future of Facebook than any of the tens of thousands of professional money managers and tech execs who are evaluating the stock, meanwhile, are almost nil.
Unless they’re playing around with entertainment money–or really have insight into a company that other investors lack–individuals should never bet on individual stocks, especially IPOs. The deck is stacked against them in ways they don’t even realise, and, on average, they’ll lose.
(If they can get stock at the IPO price and want to play the first-day “pop,” fine. But after that, the wisdom of the crowd will generally produce a much more intelligent guess about the company’s value than any one individual. Especially an individual who knows very little about the stock market.)
But Mr. Supple’s daughter uses Facebook. So she’s excited about it. And in that way, she’s similar to hundreds of millions of other people around the world. And that’s one of the reasons Facebook is “muppet bait.”
The good news is that, given all the hooplah around Facebook, Mr. Supple and his daughter are now reconsidering their plans:
On April 9, just after the roadshow kicked off, Mr. Supple said he was getting concerned about the frenzy and rethinking his plan to buy on the day of the IPO.
“Here in New York, it’s on every single news channel, it’s in all the newspapers that the roadshow has started and [Facebook Chief Executive Mark] Zuckerberg was here in New York,” he said at the time. “I’m going to sit on the sidelines on IPO day,” Mr. Supple decided. “We’re going to have to wait until the smoke clears.”
Now there’s a wiser plan…