Did Facebook kill small investing?
Retail investors have pulled billions out of stocks in the weeks since the infamous IPO.
By Kim Peterson Jun 11, 2012 4:42PM
Since Facebook's (FB) botched IPO, small investors have withdrawn a net $4.9 billion from U.S. stock funds, The Wall Street Journal reports. That includes $3 billion just in the week following the IPO.
Certainly there were other factors scaring investors in that time, including the ongoing crisis in Europe, the disappointing U.S. jobs numbers and the gloom-and-doom talk about the markets.
Facebook was supposed to be a bright spot in all of that turmoil. It was supposed to be the stock that brought retail investors back into the market. But the IPO was a disaster -- and now retail investors are more burned than ever.
Post continues below.
"Everybody asks: When are the retail investors going to come back? If we keep doing this, they'll never come back," Sang Lee, a managing partner at a Boston consulting firm, told the Journal.
Facebook priced its IPO at $38 a share, a price that seemed affordable to small investors leading up to the event. But the stock had a horrendous first day of trading -- marred by technical and trading glitches on Nasdaq -- and at several points threatened to fall below that price (the deal's underwriters had to buy up more shares throughout the day to keep the price above $38).
The stock has plunged since then, and closed Monday at $27.01.
Investors are disappointed in the stock price. But what might have made them more cynical was the fact that analysts at several Wall Street banks lowered revenue estimates for Facebook before the IPO -- and told preferred clients while keeping small investors in the dark. That inequity is at the heart of at least one class-action lawsuit against Facebook and the IPO's major underwriters.
"Sooner or later, people are going to clue into the fact that one or two big banks, acting in concert with a choice assortment of unscrupulous 'preferred investors,' can at least temporarily prop up or topple just about anything they want, from Greece to Bear Stearns to Lehman Brothers," wrote Matt Taibbi in Rolling Stone.
Retail investors sent a clear message to Wall Street in the weeks following the IPO: We're done. They have taken nearly $5 billion out of stocks -- an arena which seems increasingly tailored to the big money at everyone else's expense.
More from Top Stocks
Certainly there were other factors scaring investors in that time, including the ongoing crisis in Europe, the disappointing U.S. jobs numbers and the gloom-and-doom talk about the markets.
Facebook was supposed to be a bright spot in all of that turmoil. It was supposed to be the stock that brought retail investors back into the market. But the IPO was a disaster -- and now retail investors are more burned than ever.
Post continues below.
"Everybody asks: When are the retail investors going to come back? If we keep doing this, they'll never come back," Sang Lee, a managing partner at a Boston consulting firm, told the Journal.
Facebook priced its IPO at $38 a share, a price that seemed affordable to small investors leading up to the event. But the stock had a horrendous first day of trading -- marred by technical and trading glitches on Nasdaq -- and at several points threatened to fall below that price (the deal's underwriters had to buy up more shares throughout the day to keep the price above $38).
The stock has plunged since then, and closed Monday at $27.01.
Investors are disappointed in the stock price. But what might have made them more cynical was the fact that analysts at several Wall Street banks lowered revenue estimates for Facebook before the IPO -- and told preferred clients while keeping small investors in the dark. That inequity is at the heart of at least one class-action lawsuit against Facebook and the IPO's major underwriters.
"Sooner or later, people are going to clue into the fact that one or two big banks, acting in concert with a choice assortment of unscrupulous 'preferred investors,' can at least temporarily prop up or topple just about anything they want, from Greece to Bear Stearns to Lehman Brothers," wrote Matt Taibbi in Rolling Stone.
Retail investors sent a clear message to Wall Street in the weeks following the IPO: We're done. They have taken nearly $5 billion out of stocks -- an arena which seems increasingly tailored to the big money at everyone else's expense.
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23Comments
Jun 12, 2012 8:15AM
Potential investors were warned for weeks / months in advance of the FB IPO to "swim at your own risk" . The argument being the underlying value of the ad potential of FB was as yet undetermined and thus created a several miles of 'blue sky'. The best free investment advice of the year was ignored as greed and ignorance replaced common sense. Who do you blame for a self inflicted wound?
Jun 12, 2012 8:14AM
Jun 12, 2012 7:41AM
Jun 12, 2012 7:29AM
Jun 12, 2012 6:41AM
No. Facebook did not kill investing by small individuals. Wall Street (aka Fraud Street) killed it. The FB IPO fiasco was just a more public display of the insider manipulation and scams that have been going on for years since deregulation, the unfortunate demise of the Glass Steagall Act, the even more unfortunate bailing out of investment banks with taxpayer monies and a SEC that is about as useful as teats on a bull. If Fraud Street hasn't figured out by now that small individual investors know that the deck is marked and the tables rigged then they'll probably never figure it out!
Jun 12, 2012 12:44AM
Jun 11, 2012 9:53PM
Jun 11, 2012 8:06PM
Dear Wall Street, some thoughts for you.
Uhhh, no..FB has not destroyed the small investor market. That was well in progress way before this sh*tshow.
The trust of small investors has been so abused over the last decade that a lot of us are jaded and cynical that the markets are heavily manipulated by a privileged few for their own (not our) benefit.
What if the system was able to function honestly, and brought forward privately-held companies for IPO that :
- Have a real product that looks like it can produce revenue and is proprietary, not susceptible to fads, and cannot be easily replicated (e.g. not "vaporware" products like FB)? Remember that idea called "barriers to entry"??
- Have opening share prices where the math works and there is a demonstrable connection to benchmarks of values, like EPS and other fundamentals we can understand.
- Don't withhold key information investors should have to make a fair, intelligent purchase value decision---that's called "being crooked" (dishonest, in case you don't understand).
- Don't engage/buy-off the media to hype your product beyond the realm of fantasyland.
- Structure an IPO that allows the investor to get in at a share price that offers real value, rather than after the strike price at which all the insiders have sold.
- Find companies whose executive management look like business people and don't effect the pretense of sticking it to "the man" by wearing hoodies to NYC, even though it is a sham to suck in a gullible counter-culture, because by making the decision to go public they have already sold out to the very "Establishment" they are mocking. This is just like the Hollywood celebrity that flies cross-country to the Greenpeace or NRDC/Sierra Club Global Warming fund raiser in a cozy Gulfstream 3 (or better) private jet, dumping god knows how many tons of emissions into the atmosphere.
- Maybe find companies with founding executives who have some gratitude for the US financial system and the opportunities it creates that don't need to renounce their citizenship in advance of going from wealthy to fabulously wealthy so they can live a million lifetimes of luxury rather than just a hundred thousand by avoiding taxes.
Too much to ask?
Oh, and P.S....try some damage control and do better not to come off like the greedy, cheating, manipulating b**tards American investors have come to expect that you are.
XOX
Uhhh, no..FB has not destroyed the small investor market. That was well in progress way before this sh*tshow.
The trust of small investors has been so abused over the last decade that a lot of us are jaded and cynical that the markets are heavily manipulated by a privileged few for their own (not our) benefit.
What if the system was able to function honestly, and brought forward privately-held companies for IPO that :
- Have a real product that looks like it can produce revenue and is proprietary, not susceptible to fads, and cannot be easily replicated (e.g. not "vaporware" products like FB)? Remember that idea called "barriers to entry"??
- Have opening share prices where the math works and there is a demonstrable connection to benchmarks of values, like EPS and other fundamentals we can understand.
- Don't withhold key information investors should have to make a fair, intelligent purchase value decision---that's called "being crooked" (dishonest, in case you don't understand).
- Don't engage/buy-off the media to hype your product beyond the realm of fantasyland.
- Structure an IPO that allows the investor to get in at a share price that offers real value, rather than after the strike price at which all the insiders have sold.
- Find companies whose executive management look like business people and don't effect the pretense of sticking it to "the man" by wearing hoodies to NYC, even though it is a sham to suck in a gullible counter-culture, because by making the decision to go public they have already sold out to the very "Establishment" they are mocking. This is just like the Hollywood celebrity that flies cross-country to the Greenpeace or NRDC/Sierra Club Global Warming fund raiser in a cozy Gulfstream 3 (or better) private jet, dumping god knows how many tons of emissions into the atmosphere.
- Maybe find companies with founding executives who have some gratitude for the US financial system and the opportunities it creates that don't need to renounce their citizenship in advance of going from wealthy to fabulously wealthy so they can live a million lifetimes of luxury rather than just a hundred thousand by avoiding taxes.
Too much to ask?
Oh, and P.S....try some damage control and do better not to come off like the greedy, cheating, manipulating b**tards American investors have come to expect that you are.
XOX
Jun 11, 2012 7:41PM
Jun 11, 2012 6:49PM
Jun 11, 2012 6:04PM
Jun 11, 2012 5:42PM
Facebook will fade out like Yahoo in the next few year. No body wants to hold Facebook stock for long. Facebook stock starts high at $45 then going down to 44, 43, 42, 41, 40, 39, 38, 37, 36, 35, 34, 33, 32, 31, 30, 29, 28, 27, 26, 25, toward 13, a number that Facebook allow for our children join their social network. Ask yourself a question. Why Facebook does not buy back their stock when it drop down to the range $25. The insider just want to get the cash quick, jump out of the sinking boat, claim back their original citizen to avoid tax. Do you trust the one steal the idea from his friend, turn around, make a quick cash over night, laughing on the day of opening. Wow easy money :), merry next, take a honeymoon, and still laughing
Jun 11, 2012 5:09PM
Jun 11, 2012 5:04PM
Jun 11, 2012 4:53PM
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