

Facebook frees up 60% more shares today - chimi
http://www.bloomberg.com/news/2012-08-16/facebook-freeing-60-percent-more-shares-seen-weighing-on-stock.html

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tokenadult
From the article, with ellipsis as shown:

"Facebook, worth $51.2 billion, has lost about $40 billion in market value
since the IPO, making it the worst performer among all large IPOs on record,
according to data compiled by Bloomberg.

. . . .

"'It certainly wouldn’t behoove and wouldn’t be in the shareholders’ best
interest to dump the shares on the market all at once,' [Harding] said. 'I
would assume that all of the investors that hold the 270 million-odd shares
are probably rational, and probably realize that flooding the market with that
kind of supply over such a short amount of time wouldn’t help their
position.'"

By contrast with Mark Harding, the analyst at JMP Securities LLC quoted in the
article, I would keep in mind the old saying "The market can remain irrational
longer than you can remain solvent," and be very concerned about other
investors looking out for Number One and thus depressing the price of Facebook
stock for all other holders of Facebook stock. Over the next several weeks or
months, those of us who are looking on (I don't own any Facebook stock) will
see what the various investors decide. Thus far, all the trading activity
seems to agree in general that Facebook shares will not recover their IPO
price any time soon.

~~~
Patient0
"'It certainly wouldn’t behoove and wouldn’t be in the shareholders’ best
interest to dump the shares on the market all at once,' [Harding] said. 'I
would assume that all of the investors that hold the 270 million-odd shares
are probably rational, and probably realize that flooding the market with that
kind of supply over such a short amount of time wouldn’t help their
position.'"

This reasoning seems flawed to me: He seems to not understand that the
rational choice for individuals acting independently is often not rational for
the group as a whole. The Prisoner's dilemma, Bank runs etc. are all examples
of how this can happen.

If everyone else is in danger of selling and pushing the price down, you're
better off selling _now_ before that happens... and of course, everyone else
would reason the same way, making it a self fulfilling prophecy.

If the shareholders had some way to collaborate and agree collectively to not
sell now, his statement might be correct - but I doubt this is even legal even
if it was feasible.

Of course, if you're in it for the long haul, then other people's opinions of
the stock price shouldn't matter: you just buy/sell facebook stock based on
whether you think the future expected dividends justify the investment.

~~~
Jabbles
This is known as "The Tragedy of the Commons".

<http://en.wikipedia.org/wiki/Tragedy_of_the_commons>

~~~
mcrady
Except there's no "shared limited resource" in this case. Just an overvalued
social network.

~~~
ajays
The "shared limited resource" is the pool of buyers.

~~~
dchichkov
What pool of buyers?

~~~
ajays
The people who would be interested in buying FB shares.

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fkdjs
...and it tanks again. Many facebook employees purchased houses using facebook
stock. That is, they didn't have enough income to qualify for a loan, but they
showed their facebook stock + current market price(pre-ipo), and got approved
that way. So one bubble(FB), inflated another bubble(housing), and it's all
deflating before our eyes. The fact that facebook employees are tanking/will
tank this stock further should tell you something. I believe the employees
start selling en masse in October, so this is just the warmup. I'm betting
we'll see $12.

~~~
RobAtticus
Considering the housing bubble peaked 5 years ago, way before FB was valued at
$100B, and has been deflating ever since, I find your connection tenuous, at
best.

~~~
harlanlewis
"Across the country, home values fell 15% to 60%, peak to bottom, depending on
the area and how badly it was affected by foreclosures — most of San Francisco
got off comparatively lightly with declines in the 15% to 25% range." In SF,
the bubble was effectively flattened. Other areas saw loss of value beyond
pre-bubble prices.

Quote from one of many available sources, this one comes with graphs:
<http://www.maureenterris.com/?p=2557>

SF/Silicon Valley was insulated against the rest of the country's housing
crisis largely due to its strong tech sector, which didn't suffer the
recession as severely.

I don't know about people using pre-IPO stock to get loans, but the connection
is less tenuous than you might expect.

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Lasher
These are not new "dilutive" shares - the stock was always factored into the
FB market cap so it's not like publicly traded shares are suddenly worth 60%
less just because the float increases. But it _does_ mean that for a while
people who have been unable to sell are able to do so which is going to lead
to some short term downward pressure. Once that is over Facebook will resume
its normally trajectory, ummm, downward...

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jonknee
It's down 5.47% early... Not a good sign, almost ready to break through the
$20 barrier.

<http://www.google.com/finance?q=NASDAQ:FB>

~~~
kami8844
yup, just broke through $20.00 at 10:00am EDT

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spaghetti
I've always been curious about trading options. It seems like now is a good
time to buy the FB120818P00017000 put for example. I honestly don't see the
downside to this. That option is trading at $4 for a block of 100. So
investing $400 get's you 10000 options. If the price of the stock dips below
$17 the option could trade at 48 cents in which case you've turned $400 into
$2400 (minus transaction fees and taxes). On the other hand you could lose
your $400 which isn't that bad. What's are the downsides here that I'm
missing?

~~~
cschneid
Downside is obviously the 100% loss you'd take on the $400.

Assumption you're making: That FB is overvalued currently, and has 15% to fall
(it's at 20 now, and you are saying it will go down by $3 by the 18th
[tomorrow!!!])

I'm not sure where that $0.48 is coming from in your comment. At expiration
(when an option has no time value), a put should be worth StrikePrice -
StockPrice. So if Strike is $17, and stock is... say... $15, the option will
be worth $2 ($200 since each option actually controls 100 shares). That math
changes with the stock price, so I'm not sure what you're talkinga bout with
$0.48...

Also note that spreads at the low end of options will eat you alive.
Specifically you should expect to pay upwards of $10 or even $15 to get
anybody to fill you on those options. The $4 amount is highly unlikely to get
filled, especially at the qty you are talking about.

Basically, this is a bad idea, and will just lose you $400.

~~~
chucknelson
After reading this, it seems like way too much complexity exists in the
market. Me and my naive thoughts of "it's just simple buying and selling,
right?"

How long has it been like this?

~~~
cschneid
Options are really cool since they are so well named. They really do give you
a ton of options to adjust your risk to exactly what you want.

On one hand, you can have infinite risk strategies, on the other, you can lock
in a stock price almost exactly, with little market risk. And then everything
in between (ie, you can easily build something that's like: "I think this
stock will go up a few bucks, but nothing crazy", or maybe: "I'm worried about
a horrible plunge, but a minor decline is fine, I'll buy a put out of the
money and have coverage for the plunge".)

And really, it's fairly simple, a lot of the stuff I said about "time value"
and such was related to how you value options, not the actual complexity of
the thing itself. "How much is this worth" is always tricky, even for
something as easy to understand as a bond.

Organized markets, and bubbles, and derivatives are all old. And they aren't
inherently bad either.

You have to look at futures & options as a way to sell or buy risk. If you're
willing to pay somebody, they'll take your risk away. And the other way, if
you want to take on some risk in exchange for money, you can do that.

(note, that last thing sounds scary, but how about this: sell a put [ie,
promise to buy a stock at a certain price] right near where you want to buy
the stock anyway [with a traditional limit order]. If it gets to below that
level, you get 'assigned' the stock, which you wanted anyway, at the price you
wanted anyway. If it doesn't hit that, then you wouldn't have bought the stock
anyway. The counterparty gets insurance against their stock dropping. You take
on the "risk" of it dropping, but you've set yourself up so that it works out
for everybody involved).

(note that last strategy doesn't work if the stock temporarily dips, then pops
back up. You probably won't get assigned in that situation, where a limit
order would have triggered. That risk is what you get in exchange for getting
paid for selling the put).

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jtbigwoo
It's funny that all these analyst can talk about such vague suggestions when
it seems clear that different investors have clear motivations here.

It's perfectly reasonable for Microsoft to hold on to their shares--even if
facebook goes broke they still have billions in cash.

Thiel will probably sell part of his stake--you don't hang on to 1.5 billion
by being overly concentrated in any one area.

Other investors (VC's and funds) will almost certainly sell most or all of
their stakes. There's no expectation of 10x or 5x returns anymore and a fair
amount of downside risk.

I expect 90% of individuals with stock options to sell as they can. If I have
a choice between selling at $20 now and getting, say, $200,000 or waiting some
unspecified time and possibly getting more (or nothing), I'm going for the
sure money every time. Even for someone whose pay is in the low six figures,
option money like this can mean paying for your kids' college education or
starting your own business. The only ones who might hold on would be those who
don't have many shares/options (I'm thinking less than 2,000).

~~~
jpdoctor
> It's perfectly reasonable for Microsoft to hold on to their shares--even if
> facebook goes broke they still have billions in cash.

Common shareholders are last in line when a company goes broke.

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tedunangst
Microsoft has billions in cash.

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AndrewDucker
And seven times as many over the next 9 months. I hope that's already priced
in...

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truebecomefalse
Wow. I guess they hope they will have stabalized things after a few more
quarters.

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scarmig
How did Facebook's IPO go so badly? (It's generally agreed upon that it went
horrifically for Facebook and its shareholders, right?) Is it, in a very
stylized way, Wall Street in just wanting to extract as much money as possible
from a target and not really serving the interests of the client?

If so... how can that market be disrupted?

~~~
dchuk
A company's customers determine its value. Facebook's customers are
advertisers, not stock purchasers.

Advertisers have valued them at a few billion dollars. The stock purchasers
put that value at over $100bn. For some reason, people took the stock
purchaser's word over the actual customer's word.

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tcbawo
Not to be a conspiracy theorist, but if The Street knows that large blocks are
going on sale, this would be an optimal price to run down the price.

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tatsuke95
And how do you propose they run down the price? Someone needs to be buying on
the other end, and there are a shortage of those. _That's_ why the price
sinks.

Besides, the Street made their money off of this deal a long time ago.

~~~
Irishsteve
They can make more. They like more :-)

