And so, the much awaited IPO of Facebook has turned out to be a disaster for many retail investors.
With a market capitalization of US$100b, this one was huge.
Interest in Facebook shares had been very high leading up to the IPO. I even received a few emails from people asking whether they should buy Facebook shares.
When everyone starts talking about a certain counter, it is time to sit up – and stay away.
With a price-to-earnings ratio of around 100, the choice was clear for me. This was not something that I would want to touch. Sure, the price might have gone up crazily if there is some kind of a mania. In fact, the price did go up slightly for a short while after trading started. And then it went downhill from there.
Facebook is the kind of business that is impossible for me to predict how it will be like years down the road. Remember how MySpace and Friendster were so popular years ago but they disappeared as quickly as they emerged.
The winners of the IPO were of course the pre-IPO investors who could now sell out and make profits multiple times of their original investors.
And now, you have many groups of disgruntled shareholders who have filed lawsuits saying negative material information about Facebook had been withheld during the IPO.