Friends
Today is Facebook Day. The business channels as well as the general media are droning on incessantly about the IPO (Initial Public Offering) of the social media company that begins trading this morning. My thoughts on Facebook are as follows. First, it is one of America’s great success stories, most likely right up there with Microsoft, Google and Apple. That being said, don’t get caught up in the mania today. Let me explain how the offering works.
Morgan Stanley is the lead underwriter and handling the books for the offering. If you don’t have a massive Morgan Stanley account, or are not a large institutional player, you are not going to get any significant shares on the offering. What does that mean? It means you won’t get any at the $38 price that the stock will be first pegged at. Later this morning the shares will begin trading on NASDAQ. If you put an order to buy on the opening, you will receive what the stock begins trading at, which might be $50 or more. You will not be able to buy it at $38. Now the question is, where does it go once it starts trading. Most likely the shares will be very volatile.
If you want to own Facebook, you will have plenty of time to do so. I was at Merrill Lynch back in 1986 (yes I am old) when Microsoft went public. We were one of the lead underwriters, but I remember the allocation among the trading floor I was on was no more than 100 shares for each of us. I didn’t even know what to do with 100 shares. What client gets it? It was a total joke. The point is that if you liked Microsoft you had about 15 years to buy it as it went up and up and up. How about Apple? Heck, they almost went bankrupt in the 90’s. You had many years to buy it. More recently, you have had many opportunities to buy Google since its IPO in 2004. My point is, if you want to own Facebook, that is fine. Just don’t get caught up in the craziness today. Let things calm down over the next few weeks and make a solid decision based on believing in the company long term.
I’ll have some comments later today on the market in general. Hopefully traders are so distracted today by Facebook, they will forget about how bad the market has been for the last couple of weeks.
Have a nice day everyone.
