Facebook phenomenon

Mark Zuckerberg has changed the world - through his creation of social medium Facebook - at least once already.  He opened doors to people communication in the world wider than it was at any point before.  We had internet, email, chat rooms and MySpace before him, but the level of sharing our life stories with the rest of the world has never been that transparent and commonly used.

Facebook IPO (initial public offering) could become another game changer.  Seems like quite a few people have decided to open accounts and buy Facebook stock.  Could Facebook open the door to the investing world for average people as well?  Maybe so.  The problem is that Facebook IPO price was kind of high, at $38 per share valuing the company at $104 billion (evaluations around $20-25 seemed more reasonable).

(image belongs to FoxBusiness).

Facebook's (FB) first day as a publicly traded company started with a bang and ended in a whimper. FB shares opened on the Nasdaq at 11:30am et, after a 30-minute delay, at $42 each; 11% higher from the IPO price of $38. Within 10 minutes, that gain was cut in half and the stock hovered around $40 for most of its shortened trading day, before officially closing at $38.23.

In a week since then it only got worse. Today, on Monday, May 21st, shares fell off 11% to just $34.03. It probably will continue to decline. Yes, Facebook priced the stock extremely well to raise as much capital as possible setting records for trade volumes. However, for the average investor especially who just made a decision to play stock market game, this adventure could be a big turn-off from investing altogether. People who - especially in this tough economy - put their faith in the biggest IPO of this decade and put their savings (even if a part of it) into the stock that's losing its value within first week of being traded, may end up regretting their decision if not already, and that's not an encouraging trend.

Seems like even the $38 price was not easy for underwriters to maintain.  Company filings after the market closed on Friday night however revealed the extent to which the banks who led Facebook’s initial public offering – in which $16bn of shares were sold to new investors – were forced to move in to the market and buy shares in order to keep the price above the $38 level. Morgan Stanley, Facebook’s lead financial adviser, ended the day with 162m shares, worth $6.16bn. Other banks including JP Morgan and Goldman Sachs also bought shares, ending the day with $3.2bn and $2.4bn holdings respectively.

Today is a different story and $4 loss on the share.  My hope is that the newly found investors will not be discouraged by the losses they may experience this time around, but rather will get inspired to learn and research the stock market better before investing.  Hype alone is not good enough indicator to make money in anything.