Facebook: three investment lessons from Facebook’s IPO

FacebookThe Facebook IPO was the largest IPO ever and in less than a week it is beginning to turn into a colossal nightmare. Not only for the company but for the investors who place their faith in the company.

So what happened to cause the most anticipated IPO in history to quickly become the most infamous IPO in history?

Well from all indication it was a combination of things that were either ignored or not given the scrutiny it deserved.

Fortunately, for you there are three investment lessons you can learn from Facebook’s IPO. Lesson you must learn because if you don’t you could find yourself repeating these mistakes.

Watch your greed meter

Facebook was so overcome by greed that it ignored all reasonably expectations.  The Wall Street Journal reported that just three days before it went public the Facebook decided to increase the number of its share offering by 25 percent.

Effectively diluting the valued of the shares and dooming any chance it may have had of tending upward as is the case of all successful IPOs. Instead Facebook shares fell by 11% and 8.9% respectively on it first two full days of trading.

This greed is further demonstrated when you consider that Facebook’s intrinsic value is only $9.59 per share and the IPO was pegged at $38.00 per share.

I’m sure you maybe wondering what’s meant by “intrinsic value” well just turn up the volume and watch the video below.

Therefore,  whenever you are considering an investment you want to ensure that you do not become so overwhelmed by short term gains that you over expose yourself to needless risk.

Facebook’s intrinsic value: $9.59 per share

Get educated about your investment

It is quit easy now for investors to start to blame Facebook for it woes but this could have all been avoided if investors had taken the time to educate themselves about the company and investment they were making and not be distracted by all the hype the IPO.

There is no question that Facebook was having challenges meeting earning expectation and that this earning challenge will continue until they find a way to compete in the mobile market.

So before you invest be sure and learn all you can about the company and risk that you will be taking on.

Check your source

While greed caused the dilution of the IPO, the company obviously got the wrong advice from its Advisers who from all indication assured them that there would be plenty of demand for the share offering. This turned out not to be the case.

Secondly,  their Adviser may have also cause it to falter with institutional investors by sharing sensitive information.

Be cautious

While it may not have been public knowledge, it was interesting to see that most of Facebook’s board was cashing out as the company went public. As an investor this should cause you to be cautious as it could be an indication that the future value of the company is limited. Why else would the master minds behind the company want to leave.

Finally, Facebook challenges while affecting short term profits should not be a problem for long term investors but it has left the company with a black eye and an uphill struggle to restore public confidence.

About Facebook

You can use this link to find out more about Facebook the social networking and website which launched in February 2004 and its owners and operator Facebook Inc.

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Glenn S. Ferguson