Yahoo Finance’s Daily Ticker is reporting on what they’re calling the “Facebook IPO Fiasco: Here’s How Small Investors Got Rolled Over.”
Facebook’s stock did not “pop” as much as expected on the first day of trading. Investors have come to expect that such pops are as good as guaranteed on hot IPOs, and they therefore view them as a way to pick up some free money.
Barnum’s “Sucker” quote comes to mind. It’s unfortunate that many people seem to have forgotten that playing the stock market is risky. Maybe it’s part of the entitlement mentality. But it’s damn scary when their expectations ignore reality and their perception is that positive results are guaranteed.
That said, there’s evidence that there’s more to it in Facebook’s case. For example, the article states that:
Chief Financial Officer David Ebersman … decided to increase the number of shares offered to investors by 25 percent days before the IPO
And:
big institutional investors had much better information about the current condition of Facebook’s business than small investors did.
And:
the underwriters’ analysts cut their estimates midway through the roadshow, which is a highly unusual and negative event. They did this because Facebook told them that its business outlook had deteriorated–information that was not given to small investors.
Clearly there are some circumstances to explain and questions to answer. But regardless, it changes nothing to the individual investor: Nobody has a gun to your head. Stock market investment brings serious risk. You can lose everything. This isn’t fantasy football. Be smart, pay attention, take responsibility and grow some balls.