I Just Don't "Get" FB (NASDAQ)

Before being introduced to the likes of Paul Krugman, I was extremely skeptical that anyone at all who wrote about economics or finance had any clue what they were talking about. This is, mostly, because of my experience growing up during the tech bubble.

I had taken to monitoring the movement of the stocks that my grandfather had bought for me when I was a newborn. I owned five shares of AT&T at first, which spun off Lucent Technologies, both of which underwent multiple stock splits and explosive growth that led to me owning, at peak, 15 shares of AT&T, 10 of Lucent, and one or two shares of a couple of other spin-offs. the paper value peaked around $6,000 from an initial investment of $300, if I recall correctly. At the time I wanted to pull out and put the money into a CD, because in my daily price tracking, I saw it tapering off. I was told that it was just the ups and downs of the market.

I had, indeed, learned to take the weekly fluctuations with a grain of salt, but the emerging pattern seemed to suggest that after a wild growth streak-- driven quite a bit by the fact that people were just beginning to buy into this whole "Internet" thing, which was a subject I also knew more about than most adults at the time-- that had made a lot of people very rich, whether or not the stock was worth the asking price at the time, it certainly wasn't worth any more. People were beginning to cash out. I was twelve at the time and didn't quite have the language to communicate this to my grandfather, who had in part through wise investing been able to retire early. I was told to hold onto it-- AT&T was a blue chip, they said and it would always grow steadily over time. And there wasn't a person or resource I consulted which wasn't singing the same tune.

The other day I got a letter from the Massachusetts State Treasurer telling me that they were holding stock certificates worth about $500 in my name at the abandoned property office for me to claim. If I had been allowed to go with my plan, chances are I would have very likely been able to pay for my first year of college out of pocket.

The jury is still out on whether the lesson I learned was worth the money it cost me, but in any case I shall share it: Sometimes the experts don't know what the fuck they're talking about, and it gets more likely the more assured they are of their expertise. Worse, sometimes people know better than the experts and don't speak up, because they stand to make a lot of money off of the suckers who rely on their expertise. I didn't say anything in this space or any other about the Facebook IPO partly because I've been a bit lazy about actually producing content on the Internet lately and partly because I didn't think that anything I had to say was worth mentioning. I remembered reading about IPOs in a book my grandfather had given me about the very basics of smart investing "Buy low, sell high, buy when there's blood in the street, etc." The author strongly cautioned against them, and advised those considering IPOs to do their fucking research, because too often the offerings get marred by insiders who owned chunks of the company before anyone else had gotten the opportunity, had their own secret estimates of its value, and stood to gain.

I may follow tech news more than most, but did anyone miss all of the headlines about the series of massive private investments made in Facebook by tech bigwigs, venture capitalists, and celebrities over the past eight years? The people whose investment capital allowed Facebook to pretty much run the table in the social media market? They've owned sizeable chunks of Facebook this whole time, and this was the first opportunity for them to turn those paper gains into real money (they could have sold privately of course, but not for nearly as much return). In the end, that sort of dumping represented more than half of the Facebook shares made available at the offering.


There is, of course, a level on which all of this makes sense. People who got in on the ground floor with Microsoft, Google, and Amazon are now extraordinarily freaking wealthy. Getting in on the ground floor with Facebook must have seemed like a sure thing. And it would have been, if they were getting in on the ground floor. One wonders how anyone could have possibly thought that that's what they were doing here with an eight year-old company that's already expanded as much as FB has.

In the realm of investment, a sure thing is what happens when insiders make money off of the inflated expectations of outsiders. That truth is at the heart of every bubble in the history of capitalism, and watching people fail to grasp it over and over again is sort of maddening.