To everyone asking "how do i buy this stock at IPO?"- please think long and hard about this. Do you really want to buy on day 1 when the scam underwriters on Wall Street have already sold the stock to their institutional investors at a 10-20% profit? That profit is coming from you, the pig investors who will buy at day 1, see a tiny drop instead of the big bump you expect, and then sell for a loss. If you aren't a seasoned trader, just stay away.
TL;DR- If you have to ask, you probably shouldn't do it.
Would you care to elaborate on how exactly this "scam" works?
The job of the underwriter is to guarantee that a certain amount of stock is sold at the point of IPO. They are paid to canvas their clients and market the IPO. That is what they do. I would strongly recommend you try and understand how IPOs work and how capital is raised before you bring out the pitchforks.
If you are curious, I would recommend reading the blog post below which will explains, probably better than I ever could.
[EDIT]: Let me just add - yes, the underwriters may offer the stock to their clients at a rate that may be lower to where the market goes when the shares start trading. The underwriter's clients may decide to take profit in the first few days if the price shoots up. The stock price will be volatile either way. So if you are considering buying Facebook stock, and are prepared to hold for a while, buying at the time of opening may be OK. If you are afraid of short term volatility, wait until the price settles down.
The 500 stockholders rule says nothing about going public. It says that they must adhere to the same onerous reporting requirements as public companies. Therefore, many companies choose to go public at that point and get some of the benefits along with the complexity.
Stay out. Investment bankers (henceforth, "eye-wankers") underprice IPOs as a way of skimming money into the paws of their scumbag clients, but if you're not well-connected in scummy circles and therefore can't get allocated into the IPO, then by the time you can purchase the stock (not participating in the IPO, but trading on the open market in the following day) this opportunity has vanished.
IPOs are a disaster for ordinary investors. If the IPO's good, banks will reduce your allocation to let important clients in. If it's a dud, they'll let you get in as deep as you want. So you face adverse selection.
Also, definitely do not make a market order on the day of an IPO.
I feel much more comfortable investing in a few companies that I feel are strong than investing in a mutual fund that will roughly end up tracking the market as a whole, and invariably ending up with a dangerous bet on the market going up. (unless it's perhaps a fund like FNSAX)
You almost certainly know more about this than I do (I had to google FNSAX), but here's my issue with this strategy:
You don't make money off stocks by investing in strong companies. You make/lose money by investing in companies that do better/worse than expected. Because of this, when you invest in specific stocks, not only do you have to know whether or not the company will do well (not that hard to figure out) but also how this compares to the current expectations for that company (very difficult).
There are tens of thousands of people who are smarter than me and who sit around all day trying to guess whether companies like FB will do better or worse than expected. Unless I'm a genius, there's no point in engaging them in a field where they have all the advantages, inside knowledge, practice, etc. and all I have are guesses. (Though come to think of it FB might be the one exception to this as people on HN may have a better idea of where the world's going than others. Even then you'd have to be willing to hold for years for your strategic "software is eating the world" knowledge to kick in and become more important than the financial people's exquisitely tuned formulas).
I'd suggest a sophisticated investor would hedge with derivatives in anticipation of the substantial downside risk.
At the $100bn valuation there would likely be far more downside risk than upside, despite the likely initial upside buying. Which could last just a few minutes or hours. With the lower $50-75bn valuation, the initial upside is more likely than with the higher valuation, though a flat pricing band for several weeks or months is more probable. Profit capture would be difficult in this scenario.
* These are general comments on Facebook's valuation and is not investment advice, please consult with a registered investment adviser. :-)
My issue with what you say : I believe options (the derivatives I assume you're talking about) don't start trading till a while after the stock starts trading.
Furthermore, even if they started trading when the stock starts trading, why do you think you have positive expected value to buy the stock and also buy puts? Why not just buy calls?
If either one of these is positive expected value, why do options market makers sell them at the price they do?
Additionally, your talk about the valuation seems trite : you're more likely to make money if you buy at a $50B valuation than if you buy at a $75B valuation is supposed to be informative?
(Edit 2)
Yes, I see your explanation, but you're (again) not really saying anything.
Please see my explanation to the other comment. Thanks.
Edit below in response to your edits.
In the US, options can be written from the day of an IPO and in the case of the Facebook IPO would likely be from existing retail (employees) and institutional investors looking to make revenue on the shares they own by loaning them out for options trading. Though not from the IPO's underwriters who can not loan out shares for options until 30 days after trading begins.
For the valuation I was writing about the up and downside risk of investing at those valuations. It might be obvious to you, but not to others. Actually a lower valuation in some cases could deter investors who had initially heard it would be much higher and they may not understand why an initial prospective valuation decreased.
There are a range of trading strategies that can be used for an IPO. The example I gave was to cover both increases and decreases in the initial trading price that would (usually) allow the investor to capture a (mostly) risk-free profit.
"I'd suggest a sophisticated investor would hedge with derivatives in anticipation of the substantial downside risk."
I see. I know what some of those words mean. Man, actually I dont know what the hell you are saying. Why is it that the finance sector uses a language of its own? I understand each sector has their own quirks and logisms, but finance is the worst, for something that is kind of simple. If have money, you can buy things and sell things. How come you have all these fancy words to mean what exacly?
I was suggesting an investor could use call-options and put-options to hedge against up or down price movement from the IPO price.
Options are derivatives which gives the owner the right, but not the obligation, to sell or buy a stock. If an investor holds both, in equal (or sometimes unequal amounts), they can (usually) make money from price movement upwards or downwards.
If I was going to buy the stock on opening day or buy options, I might wait until closer to the offer day, or before opening bell, and look at the long-short spread (how many shares are being bid and offered and at what price). This can give a good indication if the price will rise or fall on opening day.
If you happen to get a trade in, a quick dump might net you quite a bit. There's going to be a frenzy on this IPO.
The ZNGA and GRPN comparisons probably aren't going to be reflective of what will actually happen. Facebook is largely viewed on a tier with AMZN and GOOG.
But, really, you should ask yourself this question again after reading through the SEC S-1 filings when they're released. Make a good long term decision.
One of the commentators on bloomberg (who asserted he always believed that the IPO size would be around $5B, on the lower end of the range) said he thought facebook credits would be a suprisingly large percent of total revenue and ad revenue would be lower than expected.
Reading between the lines: it may net to what everyone expects but the composition is important. It may suggest that Zynga is a good barometer for how facebook itself will fare.
My pessimistic take is that, like ZNGA, the wind is no longer at Facebook's back but they have no choice but to go IPO before it gets worse.