Wednesday, May 30, 2012

Facebook: Caveat Emptor

So you bought Facebook at $38 per share and now you're pissed because, as of the end of trading on Tuesday it was down to $28.84.  So to date you've lost about 24.11% of your original investment (I mean hey, it's not like you lost a quarter of it). And so, to the sounds of tiny violins playing around the world, one cannot help but ask, "So what are you going to do about it, eh?"

Well some of you, apparently all but devoid of any shred of personal responsibility and believing that once again you may have discovered a scapegoat, appear to be mad enough about your losses that you're suing Morgan Stanley (who was the leading underwriter of the IPO).  Listen, I'm not giving Morgan Stanley a pass on this debacle by any stretch of the imagination, but they were only helping to sell this stock for its owners in a free market that would ultimately determine (and is) its real value.

But let's face it, the real reason that your gluteus is less maximus than it was a few days ago is that you not only failed to pay attention to how the dot com bubble expanded and burst some years back, or how the housing bubble burst just a few short years ago, but that you failed to look close enough or to use your own common sense in judging whether Facebook was a profitable company before throwing your hat in the ring.

In spite of all the warning signs that Facebook has never generated a great deal of profit for its original investors (except on paper), that it's increasingly advertiser driven pages were beginning to turn people off and have them looking for the next big thing, and that it's so desperate for new sources of revenue that in some places it's charging people a fee to have their posts seen by everyone; you just couldn't wait to throw your money at those evil stockbrokers in order to get a piece of the action.  The fact that institutional investors, who are after all usually more cautious with their money and pretty savvy at turning a profit, did not leap into the lion's den beside you did not daunt nor discourage you in this once-in-a-lifetime opportunity.  

Facebook after all, is a name as well known as GM ( uh hey, wait a minute ...) that has at its heart a technology as cutting edge as the solar panels manufactured by Solyndra (yeah , no wait, that's not right ...), so it's not like investing would involve real risk (like, oh say, gambling on some ethanol plants) and if things went wrong, well there must have been a global conspiracy.

My guess is that most of you are the same people who refuse to push your tin foil hats far enough out of your eyes to see the admonition in your side view mirrors that, "objects are closer than they appear" before changing lanes, the same ones who fail to read beyond introductory interest rate on the credit card application, and the same ones who don't read the fine print in a car lease about what those extra miles each year are going to cost you.

Wallowing in your underwater mortgages, you're disappointed to discover that like your attempts to win Powerball's giant jackpot, or to win back the money that you lost in lottery tickets with a trip to the nearest one-armed bandit or blackjack table, that you are now decrying your continued failure to understand that concept of gambling involves risk; and more often than not ... loss.

Have no fear however, your exalted federal government, a expert in the creation of victims in this country, is on your side (and grateful that this one wasn't their fault).  Having gained their sympathetic ear, there's little doubt that before it's all over, the House and Senate will each hold hearings on the glitches that occurred on the trading floor both during the IPO and continue on to the present.  When those are over, they'll hold some more about what information Morgan Stanley released, when they released it, and to whom.  And if the legislature cannot find the culprits responsible, no doubt the Justice Department will take up the cause after them (after all, they have a lot of investigators who aren't looking for a bunch of guns that crossed the Mexican border a while back any more).  

And while no one will ultimately be brought to justice (if there actually was any wrong doing going on), we will all be able to take heart, knowing that our government has our best interests as its primary concern.  This being the case, regardless of the lack of conspiracy or evil intent, the two respective houses of the national legislature will be able to write laws that they can tout as protection against any such occurrence happening again.  (Well they will if they can beat the president, who will no doubt be racing them in an attempt to issue an executive order to the same purpose.)   

Re-wrapped in the warm and fuzzy embrace of government regulatory protection, we can ignore the fact that no one was forced to invest in Facebook (unlike the millions that have been forcibly invested on our behalf in GM and Chrysler).  You should therefore also pay no attention to the billions of our money that the federal government continues to invest in green companies and foreign banks with equally unprofitable business plans; usually without our knowledge, and certainly without our informed consent. Take heart instead that the protections created for any future IPO releases will no doubt be so complex and onerous that no one will ever attempt one again.

After all, it's only been the case that for thousands of years (going back to before the glory days of the Roman Empire) that we've heard the Latin warning, "Caveat Emptor" .... "Let the Buyer Beware".

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