Ritholtz: For Investors, Jumping On The Facebook IPO Could Be A Recipe For Disaster

barry ritholtz

Photo: Bloomberg TV

Facebook will start trading publicly today.  Valued at $104 billion, it will be the third biggest IPO in U.S. history.But Barry Ritholtz, market commentator and CEO/director for equity research for Fusion IQ, reminds us there’s a difference between a good company and a good investment.

In an interview with Bloomberg TV, Ritholtz said historically IPOs have been money losers and said Facebook shares at $38 or higher are not a wise investment:

“Given the hype and excitement about this, it all goes back to Peter Lynch “buy what you know’ which has had mixed results over the past few years.

There’s probably going to be a substantial pop in this. The stock is going to have a nice opening run but the question to me – I have yet to be dissuaded that this isn’t an extremely expensive stock and in order to grow into this, they have to grow faster than they’re growing. They have to grow profitability much faster than they’re growing, and they have to more or less double revenues every year for the next four or five years.”

While Facebook is interesting because of its tremendous reach and very few companies have managed that sort of reach, but the question is can they monetise their user base.

Ritholtz added that “jumping on every hot thing that comes down the pike, that’s a recipe for disaster.” He said in a period of “retrenchment” investors should look at broader indexes and reduce their equity exposure.

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