The Facebook (FB) IPO drama has been fascinating and entertaining if you’re comfortable being a Luddite like me and fully confess an inability to “get it” when reading bullish forecasts of their business. A brief glance at their S-1 (the registration document the company filed prior to going public) reveals that FB made $1BN in profit last year. So the trailing P/E of 104 that its $38 IPO price represented shows that it’s only a stock for those unwilling to be distracted by financial statements. A delay in the opening on Nasdaq can scarcely be blamed for altering the value of the company, although many are pointing to that as a cause of its subsequent drop in price.
That a value investor would find FB unattractively priced is perhaps not that newsworthy. But I do think the uproar over how the IPO went, the righteous anger of all those “investors” frustrated in their desire to turn a quick profit, reveals much about what is wrong in investing today. The media-led hype leading up to last Friday’s launch was unprecedented – and it’s not really their fault, CNBC and others are simply providing what their customers want; 24X7 coverage of the Big Event. But the very short term nature of all this interest is so far removed from investing that it barely deserves that description. This is why people call Wall Street a casino. Because so many retail investors look for quick profits with probably little more thought than they use to choose between red or black in Atlantic City.
But it’s not just amateur investors that messed up. One of my favorite quotes is this:
“I’m disappointed that so many seemingly smart people have failed. They raised the range on the offering literally two days after the underwriters called around saying lower your numbers for the second quarter,” said Hugh Evans, portfolio manager at T Rowe Price, one of the largest institutional shareholders of Facebook.
“Those two things don’t go together, ever,” he added.
I wonder if Mr. Evans counts himself among the “smart people”.
If a little more cynicism was applied, and a little more long term investing, there wouldn’t be such destruction of savings that are supposed to cover so many retirements. If you really wanted to invest in FB, the subsequent drop in price to $31 ought to be regarded as an opportunity to add at more attractive levels. Judging from the furor though, and no doubt imminent lawsuits, such an approach is far from prevalent. Investors have only themselves to blame.