Friday, May 18, 2012

Facebook IPO Day Winners: Everyone Who Didn't Buy

I read an excellent blog post from billionaire Mark Cuban earlier this week titled "The Facebook is the most important IPO to EVER hit the Stock Market - but not for the reasons you think."

He mentioned that he had a handful of people approach him in the week to ask him if he was going to buy shares. These were people that were normally not interested in stocks.

This also happened to me a few times today; I received texts from some people that I had not heard from in a while who know that I follow the financial markets, asking me what I thought about Facebook. I told them politely that I was going to be staying away from the offering.

The importance of this, as Cuban describes in the article, is not people talking to each other but people talking to each other about the stock market. Since the financial crisis hit in late 2008 the "retail" investor has left the market and they have not returned. You can follow TIC flows every week on how people choose to invest in their 401k or IRA and for almost four straight years money has flowed out of stock funds and into bond funds.

People have become disinterested in the market at best and terrified of the market at worst. A major reason people have left stocks, other than they have been burned twice badly in the last decade (2001-2002 & 2008-2009) is that they are losing trust in the market itself. Over 70% of the shares traded per day on the stock exchange are through high frequency trading machines. The other 30% is composed heavily of hedge funds and money managers who have the ability to manipulate prices in the short term through massive leverage.

So what happened minutes after Facebook was available for trading to the public? There was a computer malfunction that caused initial orders not to process. What a disaster. You could not have scripted it any worse for a market desperately looking to gain the public's trust.

Facebook shares collapsed downward multiple times throughout the day to the initial $38 level and it took major institutional buying from the underwriters to keep the price from falling into the red. Minutes after the bell closed (and the headlines could announce Facebook was "up" on the day) the stock moved into the red. As of this writing, anyone who purchased the stock at any point today is now down.

While every person on the planet was watching Facebook, I spent the first half of the week (Monday, Tuesday, and Wednesday) watching the sentiment indicators closely on the precious metals. The daily sentiment index for silver reached 6% on Wednesday meaning 94% of investors felt that silver was moving lower from that point. This was lower than the silver sentiment levels reached at the lowest levels of the 2008 financial collapse.

I was in the market with force purchasing shares of PSLV on Tuesday and Wednesday at the depths of despair, and I spent the rest of the week occasionally checking in on the Facebook insanity.

We'll check back in a few years to see which investment (FB) or (PSLV) was the correct one to be focused on this week.

To read the Cuban blog post click here.

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