Why Insider Peter Thiel's Huge Facebook Sell-Off Is Not The Signal You Think It Is

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Earlier this week, Facebook’s first investor, Peter Thiel, sold 20 million shares of the company’s stock at ~$20, half of Facebook’s $38 IPO price.Many people took this as a negative signal for Facebook stock.

Their thinking is based on one question: Why would one of Facebook’s board members – someone who must be familiar with the company’s long term outlook – sell so much of his stake if didn’t think the thing was going in the wrong direction?

The problem with this thinking is two-fold.

  • First, there are plenty of good answers to that question. The best answer is the one provided by another VC, Fred Wilson, who wrote: “Those who took the risk of losing all the capital they bet on 20 year old Mark Zuckerberg are entitled to their return. And they will get it. And anyone who thinks otherwise has their head in the sand.”
  • The second problem with reading Thiel’s sell-off as a negative signal is that Peter Thiel’s actions in the public markets should not be read as a reliable follow-me! signal for other investors. Thiel is a very smart businessman who did well creating PayPal and investing in several small companies that have become very valuable. But his track record as a fund manager is lousy.  He created a multi-billion dollar hedge fund called Clarium Capital in 2002. By 2011, its assets had declined 90%, and investors who stuck with him would have lost 65% of their money.

There are plenty of reason to be bearish about Facebook, starting with the fact that the company’s revenue growth is decelerating and that users are flocking to mobile, which is hard to monetise.

Peter Thiel, a billionaire genius in the realm of startups, is not a good signal maker for other stock market investors. If he were a lighthouse, he’d have you breaching your hull on rocks.

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