I wasn’t one of the Facebook IPO investors, but I might have been had things been different. Business Insider just ran an interesting piece regarding the ignorance of Facebook investors and posed one basic question:
Did anyone who invested in Facebook actually read Facebook’s actual prospectus or listen to Mark Zuckerburg?
As the Business Insider writer observes, it does not appear that many of the Facebook investors took the time to look carefully into the financial success of Facebook before laying out cash for their investments into Facebook.
Business Insider wrote about some of the warning signs:
Facebook Insiders could cash in their stock early, which would consequently make the stock go down.
Facebook’s Price-to-Earnings ratio was “absurdly high.” I believe this was a similar characteristic of many of the companies who went under in the first dot.com bubble.
Facebook’s CEO Mark Zuckerburg warned everyone to wait for long-time returns. He also apparently warned investors that he would not accept or listen to any whining from the stock holders. (Or likely anyone else for that matter if his past actions are indicative of his thinking at all.)
Facebook’s CEO Mark Zuckerburg also noted that the company was founded with a “social mission” and not a “business mission.”
What can ordinary investors make of this? It’s hard to say, but after reading the Business Insider article, I have a few ideas:
If you did not invest in Facebook, be glad because the adaptability of Facebook in the past might not withstand the pressures of the economy or the needs of shareholders. That said, the potential of Facebook because of the tremendous amount of information that the company contains on its users and investors is huge and could make the company worth more than its advertising revenue suggests.
Did anyone reading this invest in the Facebook IPO? How do you feel about the riskier Facebook investment versus the old-fashioned investments in old-school companies with brick and mortar businesses that are less likely to fold?
What do you think of the Business Insider’s assessment of the Facebook investment? Will the investment that many made into the IPO pay off in the long run or will investors flee fast from Facebook before the original investors sell their stock?
I honestly have no idea, but the lesson from the Facebook IPO is to do your research before investing in anything.