
Facebook, One Year Later - eegilbert
http://www.theatlantic.com/business/archive/2013/05/in-facebook-we-trust-what-really-happened-behind-the-biggest-ipo-flop-of-our-time/275987/
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mikestew
I wonder how common this is amongst retail investors: buying things they have
no business buying. Whether it's an IPO or an options contract, there's a
great deal of complexity behind many financial instruments, and just because
your brokerage gives you the opportunity to pull the lever it doesn't mean
you're qualified to do so.

On the other hand, it's hard to work up sympathy for the woman in the story.
Yes, she wasn't privy to behind-the-scenes details. But it sounds like she put
less research into her $200K "investment" decision than she did with the last
car she bought. The Atlantic may have left out the details of her late-night
scouring of web pages for information, but as a proxy for retail investors in
general it's probably accurate.

Here's the only thing a retail investor needs to know about IPOs: FB isn't the
exception, it's the rule. Buy an IPO on opening day and the vast majority of
the time you're going to lose money. Why? (And I wish I could bold and
underline this.) Because the IPO isn't to make _you_ money. Stay the hell away
from them unless you know what you're doing. And you probably don't.

EDIT: maybe I'm mis-remembering, but didn't the problem of mobile users and ad
revenue come out _before_ the IPO day?

~~~
campnic
It is not the responsibility of the purchaser to know information which is
purposefully withheld from them. From the article

> Scott Sweet's multi-billion dollar hedge fund client flipped the stock at
> $42. His subsequent short made his firm its "largest profit of the year,"
> Sweet said. There's "no way" a retail investor could have known about the
> lowered projections, unless he or she "had a friend at a multi-billion
> dollar institution," he added.

Please explain to me, when information is withheld from the purchasers and
only specific clients notified as to circumstantial and meaningful changes to
the state of the offering, how anyone could ever "know what you're doing?' In
fact, Morgan Stanley was actively misleading investors by continuing to adjust
the specifications of the offering to make it look better.

Analogy: If an automaker produced a new car which was _secretly_ designed to
become worthless (engine would fuse together) after 3 months and only told one
rich people not to buy it, would that be fine? What if there come back was
'you could always open the hood and see our computer components which execute
after 3 months, its not our fault you don't _know what you're doing_ '

~~~
UVB-76
My understanding is that the information was not _withheld_ from retail
investors; rather, it wasn't _actively disseminated_ to them, and the
significance of the information impressed upon them.

The reduced revenue estimates were public information; I recall reading about
them myself before the IPO took place. If someone had put me in charge of
billions of dollars and told me to take a position on the Facebook IPO, I
would have shorted the stock, as many others did.

The crux of the issue is that wealthy institutional investors had analysts at
their disposal to point out the revised revenue estimates, and retail
investors like Swaminathan didn't. Retail investors were ill-prepared for the
IPO, and they got burned.

~~~
campnic
They're ill prepared to consume the information in the format its delivered
(if it is delivered at all). Notice, the revised S-1 doesn't say the _amount_
of the adjustment, you had to receive that from Facebook via another channel.
So, it doesn't really have to do with special analyst job knowledge, it has to
do with special treatment.

I mean, " _actively disseminated_ " seems a bit generous. They call 3
institutions to let them know meanwhile individual (notice i'm intentionally
not saying "retail" because thats become some sort of in-crowd, brow beating,
bullshit term for shaming regular, non-hedge fund investors) are left to read
smoke signals. Its not that the institutional investors "had analysts at their
disposal" its that the systems is built to make sure institutional investors
and hedge funds get information others don't.

You can say what you want, but the quote from the hedge fund manager seems
much more clear then your opinion, and he's a domain expert who took part in
the situation.

>"There's "no way" a retail investor could have known about the lowered
projections, unless he or she "had a friend at a multi-billion dollar
institution," he added."

------
swalkergibson
Granted, she was extraordinarily foolish to have gambled her entire life
savings on one stock's IPO. However, this is where things fall apart for me:

========================

She turned her attention to her computer screen only to realize that there was
no sign of her having voided the order. She kept refreshing the page in hopes
of seeing the notification. When no cancellation report appeared, she called
her stockbroker at Vanguard. "What's going on?" she asked.

If the cancel order was placed, then it's probably cancelled, the broker told
her. She got off the phone and went back to her computer screen. There was no
sign of cancellation. She called Vanguard again. This time, she says, she
waited on the line for a long time, but no one came to take her call.

Meanwhile, Facebook stock opened at 11:30 a.m. The mysterious delay was due to
technical glitches. NASDAQ's electronic trading platform couldn't handle the
high volume of trades. In the first 30 seconds, around 82 million shares were
exchanged.

==================

Am I reading this correctly that she attempted to cancel the order and it just
failed? Is that really tolerable?

~~~
VLM
She only lost about 10% of her life savings on that trade on the first day.

"Her son advised her to hold onto her shares until she either resolved the
matter with Vanguard or the price bounced back."

That would be an interesting malpractice lawsuit, mom vs son. Just sayin.

How dare her trade not profit! I know, file a lawsuit for a 400% rate of
return for, um, well, not winning in the casino, thats what.

This is what is known in the business as catching a falling knife. By the time
the legal stuff wrapped up, she lost more like 90% of her life savings as the
stock cratered. A legal maneuver attempting to cash in on the situation was
the gamble that lost most of her money because she caught a falling knife and
stubbornly refused to let go. Really its two back to back gambles both of
which failed.

~~~
jbooth
If she tried to cancel the order, the broker should have been able to cancel
the order for her. They had over an hour to work with -- if it were their own
money, it'd have been handled in milliseconds.

It's standard to blow up the damages figure in the initial lawsuit filing. Big
companies do this EVERY SINGLE TIME. Yet this woman does it and she's the
greedy one who won't take responsibility?

Vanguard had one job here, they failed at it, and they should have either
settled with her for her first-day losses and no punitive damages immediately
or lost in the lawsuit with bigger damages eventually. Of course, the game
being what it is, they just won eventually.

~~~
VLM
"Vanguard had one job here, they failed at it"

How so? She clicked buy, did she not? And she got exactly what she wanted.
Quite awhile later, she changed her mind about what she wanted. Oh well.

Its like buying a lottery ticket, then after the numbers are picked, deciding
you don't want it anymore and trying to return it. You can get away with that
kind of stuff at walmart or target, not so much at the lotto kiosk or the
stock exchange. She had 12 years of stock trading experience per the article.
Not as much as me, but she didn't exactly fall off the turnip truck the day
before, either.

~~~
jbooth
Oh come on. She changed her mind over an hour before the market opened and
they couldn't process her cancellation. She didn't ask for her money back
after losing it, she asked to stop the trade before it was executed and they
failed at that for over an hour. Are you seriously not getting that
distinction?

It's not like buying a lottery ticket and deciding you don't want it after the
numbers are picked. It's like starting to buy a lottery ticket, then changing
your mind, and the clerk punches you in the face and takes your wallet, giving
you your lottery ticket anyways.

I understand that it wasn't on purpose but in most industries if you fuck up
and cost your customer a lot of money then they're going to have legal
recourse against you.

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johnvschmitt
Regardless of you how feel about FB, Banks, etc... In this case, the IPO
underwriters DID serve the founders/company, which is their job.

Meaning, a "pop" means the IPO was priced too small, giving the early
investors/founders/employees a low price, and giving the first-day IPO
purchasers (who did no work, & are just gambling) the benefit of that new,
higher price.

No "pop" means it's priced about right, and serves the interest of early
investors, who took far more risk & often built the company.

~~~
spinchange
The underwriter's job is a little bit more complicated than just maximizing
the offering for the company. They actually serve many interests including
those of their own clients and stakeholders.

A "pop" does not necessarily mean the issue was underpriced. Besides, an
increase in share price _benefits the founders too_

This issue didn't just fail to "pop," it subsequently tanked which suggests
that it was overpriced/oversold and while Facebook, Inc. received more cash
for the offering, the net value of the enterprise was worth less because of
it.

Stock is a form of currency too. For compensation, acquisitions, and more. I
think Facebook was out to get all they could, probably still expected a pop
(hubris) and the bankers who did the issue let them because they're all shells
of their former selves, and they were hedged with the way the deal was
structured anyway (greenshoe).

Think of it in terms of taking a cash-out refi on your home with an
artificially inflated appraisal. You might maximize the cash you can get, but
what's the value of that cash when the actual value of the house is realized
and you're at break-even or worse, underwater? Is the bank just "doing their
job" structuring deals that way?

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rayj
Investing greater than 10-15% of your net in high risk stocks is crazy. If you
look at Berkshire Hathaway 13F Facebook is nowhere to be seen. There is Amex,
Coke, WAL MART, IBM... These corporations will probably be here in 2023. I
have no idea about FB.

[http://www.sec.gov/Archives/edgar/data/1067983/0001193125132...](http://www.sec.gov/Archives/edgar/data/1067983/000119312513222307/d535016d13fhr.txt)

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vagarwa
What's the point of discussing how at fault a poor old retired widow is. Why
don't we discuss of how deliberately vague the last minute update to S-1 was!
(I was a banker who has written a few S-1s and I can imagine what kind of
discussions precipitated when Mr. Ebersman dropped the 'bomb' during the
roadshow - if only those discussions could be recorded) Facebook and its
bankers broke NO law. But IPO investing doesn't have to be this big of a crap
shoot for retail investors. The prospectus should put anyone, who cares to
read and parse it, at equal footing with the institutional investors. That's
where the law is lacking a bit. The prospectus can not include any forward
projections and institutional investors get to see all of those BEFORE the IPO
(of-course making them available will bring their own sets of problems). I
wish you guys discussed that part here as well. Being non-bankers and non-
lawyers (for the most part), you can come up with better solution, maybe?

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bluetidepro
Link bait...

For more context, the real title of the article is " _Facebook, One Year
Later: What Really Happened in the Biggest IPO Flop Ever_."

~~~
mortenjorck

      She'd never placed such a big bet on just one stock, but she felt a personal
      connection to Facebook. She had been using the site to connect with family 
      and friends since 2009, and almost everyone she knew had an account.
    

Kind of like feeling a "personal connection" to a TV show you've been watching
since the first season.

~~~
snuze
Technically, Facebook was around since 2004 and open to anyone over 12 since
2006, so she jumped in about 5 seasons in.

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D9u
I once read a candid remark by one of the big time players on Wall St. To
paraphrase:

 _Only a fool plays the stock market without access to insider information_

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magikbum
What the hell that lady was spending half of her retirement account on one
investment. That is horrible financial planning no matter how the stock does.

