If you bought Twitter, own your mistake
If you grabbed the stock on its opening day, accept that you are now an investor, not a flipper, and that you simply got started at the wrong level.
I got steamed when I heard Barry Diller, the chairman of IAC/InterActive (IACI), talk Tuesday morning about how no one's actually investing in Twitter (TWTR). He claims people are just trying to make a quick buck in the name, and that the only people who will make money in it are the insiders.
I found these comments to be uninformed because, in truth, Twitter's initial public offering proceeded in the exact opposite fashion. Investors -- not traders -- were those who actually bought the stock that day. The traders were the people who flipped it to the investors. Those who were trying to make a few bucks were the people who sold it. They were not, as Barry Diller contended, the buyers. The buyers just actually thought they had bought a great company at a reasonable price -- when, in fact, what they really did was buy a very good concept at a very high price.
That's because individual investors thronged to this deal to invest in a product they like, and not in the stock of a company they had researched. There's nothing wrong with that concept per se. There are plenty of situations in which it's permissible to like a product, to research the company and then to buy the company's stock if you think it is reasonably priced vs. the enterprise and the prospects. But the people who bought Twitter that day stopped at the first part, the product's worth. Most didn't bother to analyze the actual prospects of the company, and almost no one seemed to try linking the company's stock price to Twitter's prospects, or they would have found it as absurdly overvalued as it in fact was.
It's not all the fault of the investors. Twitter was a front-ended-loaded sliver deal: Only a small piece of the total float was offered for sale, and a big concentration of that small float was given to about a dozen institutions that then purchased the rest of their stock, once it started trading, in order to get full positions in. So if a giant mutual fund got, say, 1 million shares of this 80-million-share offering at $26, it might have then gone into the open market and bought another million shares at, say, $46, to get an average of about $36.
That buyer, which has pretty much pledged both to keep the stock and to buy more, is a tough competitor -- because it has got such a good basis by virtue of its earlier allocation.
The new investor, however, gets hurt both by the paucity of the stock for sale and by the voracious appetite of that averaging-up mutual fund.
The banker would have needed to release 2x to 3x that amount of stock in order to have prevented Twitter from opening that high. This is something that, in retrospect, might have been better for all concerned, especially the company, which always needed more money.
The investors in Twitter didn't care what price they paid because they, arguably, had no intention of ever flipping it. They want to be long-term. The issue, of course, is that long-term is no excuse for overpaying. Just consider that you could have bought all of the Twitter you wanted at $41 Tuesday. I think you can buy more stock at even lower levels today. I do not believe most of those buyers at the opening that session intended to sell it higher during that very day.
They want to own it.
What do you do now if you are one of those people? I would go read any of a number of terrific research pieces that are now out about Twitter. I would learn about what you own from SunTrust's Rob Peck or Colin Sebastian at Baird, both of whom have penned high-quality, level-headed pieces about the company. They can help you make a considered judgment as to whether you should buy more, hold or sell.
Ultimately Twitter can go higher from the opening-day price. It Twitter gets it right, you could see the same denouement here as what we saw in Facebook (FB). The latter was a stock that got cut severely -- not in half, but maybe down to the low-$30s -- and then rallied higher as the company grew into its market capitalization.
I fear most that Twitter shares will get hammered again, and that you will proceed to sell. Perhaps that journey down may be too much for you. If you do the homework, you will at least be forewarned about the overvaluation, and you can either get comfortable with it or cut and run now, when it is still priced too high. Either way, accept that now you are an investor, not a flipper, and that you simply got started at the wrong level.
At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long FB.
More from TheStreet.com
it's a non-product. essentually just a billboard company. "selling ads" to people who THINK users will click on their ads.
in reality, twitter, like facebook or others, play games with how their screens load to blip around so users accidently click on ads.
it's all fluff
"you are an investor, not a flipper, and that you simply got started at the wrong level."
Good description of anyone that takes Bobo's advice.
"You are an investor, not a flipper [. . .]"
This applies to all the retail investors who were not flippers--and that's not many. The flippers were probably more than 75% of the opening day retail buyers.
". . . and [. . .] you simply got started at the wrong level."
This remark takes the cake for putting lipstick on a pig.
I do not know how Facebook, Twitter, some revolution in email, M.S. Messenger, etc. will play out in the future. I haven't got a clue. And I'm a scientist who wrote the first animated computer adventure game and am listed in the Giant List of Classic Game Programmers. I wrote my own disc operating system to bypass the copy programs of the day.
So the technical details are no problem to me. But I don't know what appeals most to the masses, don't know what new things someone's excellent mind is going to produce, don't know if Verizon, AT&T, Comcast, ABC, etc. etc. have enough muscle and expertise to finally put together the all-in-one Internet-Phone-TV product that will eventually happen.
I have a reasonable understanding of General Mills and how names like Cheerios, Green Giant, and Yoplait give them an edge. The same with Caterpillar, Coca Cola, and Abbott Lab's Similac baby formula.
So that's where my money is and that's where it will stay.
Obama's hair will be completely gray before the website is fixed - Thumbs Up
Obama will discover "Just For Men" before the website is fixed - Thumbs Down
Almost didn't stop by today...should be at a Funeral Mass.
Thanks VV, sounds interesting; Mixing business with pleasure...
I've never been to Europe or England..
Guess if you should buy a Pub, you really don't want to be your best customer, usually doesn't work too well.
Have a safe trip and enjoy yourself.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
As geopolitical tensions threaten to spin out of control, investors are wondering how best to position their portfolios for the global turmoil.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.