Friday, May 18, 2012

Biobrain Stock Tips: Facebook Edition

Over on Facebook, a friend asked people to give their advice on whether buying Facebook stock was a good idea or not.  They mentioned how cheap FB's stock was compared with Apple's, with the idea that since Apple's is so much higher it might mean that FB's might some day be that high as well.

Most people had nothing to say, but as usual, I've got opinions and figured I'd offer them here as well.  Besides, you are my loyal readers, while they're just Facebook friends, so I'd certainly be remiss in not providing my sage advice to you; particularly if you had any plans to actually purchase said stock any time soon.

It's most likely a dumb idea, unless Facebook has some big surprises on the way, because the current price already has taken into account what we already know about it; with quite a bit of premium added in for the fad factor.

This isn't like some small start-up that's a great idea that no one knew about before it got big.  When Apple and Microsoft went public, it still wasn't known what they'd become.  But what is Facebook going to become that we haven't already predicted?  Not much.  So the high price is already baked into the cake.  And more likely than not, they overbaked the price because they know people have unrealistic expectations of where they're going and know that there are enough suckers to overpay for the stock.

At this point, a big chunk of the the growth has already happened.  And with any stock, you only get rewarded from dividends or growth, and since FB isn't likely to be paying giant dividends, all they've got is growth; but how much bigger can they grow?  I mean, Zuck's all talking big about how all Apps will be wrapped around Facebook, but that's most likely smoke he's blowing up asses in order to hype up the stock.

Btw, you can't compare stock prices like Apple's to Facebook's, because it depends upon how many shares they're issuing.  FB's price isn't high, but they're issuing a TON of stock, so each share isn't worth much.  FB is just playing a game with the suckers, so they'll see the low price and realize they can get in, but not realize that they're not getting much.

Meanwhile, Apple's price is huge, but you're getting a bigger slice of the company.  So it's not at all realistic to expect to see FB's stock some day match Apple's, because they're entirely different things.  (I was going to say apples & oranges, but realized it'd be a pun and I detest puns; even accidental ones.)

Sucker Stock

And another thing: Facebook has actually been a public company for awhile now, but only for the big money boys. So that's another reason why this isn't the same as other IPO's. This isn't a case of a small company selling stock to become big. This is a big company finally cashing in, which is a relatively new phenomenon.

And you can bet that the smart money isn't just going to let you come in and get rich off their stock. They're selling part of the company because they want their dough, and anyone buying in now is buying what they've already decided they've had enough of. And if they thought they'd be considerably bigger next year, they'd wait until next year to sell. More likely, they know the growth is leveling out, so they're getting theirs while they can.  And since Zuck is maintaining control of the company with a different type of stock, what they're selling now isn't the real stock anyway.  So this is basically a sucker's stock they're selling now, while Zuck is keeping the real stock for himself.

What you're going to see is the price shoot up the first day, as all the savvy brokers get the good rates, and then it'll go down the next few days as those guys cash in and get their easy money.  And then the price will settle in at least somewhat higher than it is now, but not much higher because Zuckerberg & Co aren't idiots and had no intention of selling this for much less than it'd be worth in a month.  And once everyone realizes they bought a little piece of turd, all the thrill will wear off and depress the price.  And while it's possible that the stock will be somewhat higher in a year, it's more likely to be worth slightly less; unless there's something big we don't know about.

One last thing: If you buy stock when others are buying, you're just gambling against the house.  The smart thing is to buy when they're selling and sell when they're buying.  Otherwise, you're just playing a game of hot potato to see who's stuck holding the potato when everyone else bails; and while you might win a little that way, you won't win much and you're more likely to lose in the long run.

And the best thing to do is to buy something good when everyone else is panicking and hold on to it for awhile.  And never sell if the price is dropping, unless you just don't believe in the stock and think it'll never go up again.  In the long run, a real stock

1 comment:

Godot51 said...

So, now the Facebook network is valued at billions of dollars.
How many calories does it produce?
Can it provide shelter from the elements?
Can it teach a child to read and write?
Can it teach other needful, useful skills, such as farming, carpentry and sewing?
Can it heal the sick or ease their suffering?
Can it dispense justice and protect the weak and the unempowered?
A $100 billion doesn't buy much these days.