Everyone and their grandma will be tuning in to the nearest stock ticker tomorrow, May 18th, to see what happens with the Facebook IPO.
Whether you think the stock is worth it or not, I think the attention is warranted.
It’s the most expensive Internet IPO in history and expected to be the most involved in terms of general public participation (because 900 million people use Facebook and “like it”).
How I’m Buying Facebook Stock
I’ve decided I’m going to invest in Facebook. I’m going to take a very small amount of cash and attempt to make a limit order for Facebook stock through my discount online broker. A limit order is a way to buy stock that guarantees you’ll buy it only if it remains at or below a certain price.
I won’t have access to the initial IPO price (because I don’t have millions of dollars and an account with Goldman Sachs), but by limiting my order I limit my risk of buying too high (at least in terms of the IPO price, which some have pointed out as way overpriced to begin with). So I may own stock in FB by the end of the day Friday, or it may take till next week for the price to dip back down to my limit and for my broker to pull the trigger.
My future plan for the stock is admittedly shaky at this point. I’ll be watching the price over the next few weeks and will consider a quick flip. I might also be tempted to hold for six months to a year. Who knows, I may end up keeping it indefinitely. This is the advantage of investing a small amount of money. It doesn’t really matter that much. I’m not retiring on this money.
You Shouldn’t Buy Facebook Stock…
Note that I don’t normally buy single stocks. This will be a first for me. I do 99% of my investing with my retirement in mind using index funds or low cost target funds in retirement accounts like the Roth IRA and 401k.
If you’re going to buy Facebook stock please don’t invest in Facebook stock with more money than you have to risk.
- I wouldn’t buy Facebook stock if I had consumer debt that I was still paying off.
- I wouldn’t buy Facebook stock if I had not met (or at least on track to meet) my retirement account maximum contributions for the year.
- I wouldn’t buy Facebook stock if I had short-term savings goals to achieve.
Basically, I wouldn’t suggest buying this stock (or any single stock) unless your financial house is very clean and you have some money to blow.
You Should Buy Facebook Stock…
If you are going to buy, then create a free account with an online discount broker and place a limit order so that you don’t purchase the stock when it’s at it’s IPO peak. Or, simply wait a few days and see what happens. If the IPO price is way over-priced then we’ll know soon.
As for Facebook’s long-term value, there are a ton of people saying that Facebook is not a good buy. Much of the negativity that I see revolves around the fact that Facebook has reached a peak from a user base standpoint. I would agree that it has reached that peak.
But I don’t believe it has reached a revenue peak. I have no reason to doubt that Facebook can find a way to make more money with the platform, while maintaining the non-commercial feel that people trust. Especially once public investor pressure is placed on the company. They were smart enough to build it and dominate. What’s stopping them from iterating on their position?
So when you combine the two factors (user dominance plus revenue potential), I see a big upside to this company. Of course, just because a company is strong it doesn’t mean the stock price will follow suit.
Still, the comparisons to Groupon.com‘s IPO or MySpace.com are way off base. Facebook is not a fad, nor is it just the next best social media tool for the Internet. It is the Internet! It is completely entrenched in Internet culture and online business (think Facebook comments and Facebook Connect). When people go online, they go to Facebook.
Additionally, when I see people sharing anecdotal evidence about their experience (or lack thereof) with Facebook Ads as if they’re not effective, I have to smile. This makes it more clear to me that Facebook has a big upside in terms of finding a way to profit from their complete Internet dominance.
What’s your take? Will you be investing in Facebook stock?
Monday morning update: I ended up placing a limit order of $40 through Sharebuilder.com on Thursday at 4pm EST (per their recommendation). Before the release of the IPO, and before the market even opened, my order was mysteriously cancelled.
I’ve since called Sharebuilder.com and they cannot explain why the order was cancelled. I was travelling all day Friday and could not get online to execute another trade. Obviously, based on Friday’s performance and Monday’s results, I’m happy that the order did not go through.
The plan now is to wait for a few days before executing on a buy trade of Facebook (FB) stock.
Second update: ShareBuilder.com finally responded to my request for an explanation as to why my original order didn’t go through:
“Thank you for your patience while we researched your Facebook order cancellation. I talked with my back office and found that the order was canceled by Pershing, our clearing house, in error.
This error was a fallout from the NASDAQ issues experienced on 05/18/2012. Due to the unprecedented volume of orders, we’ve found that some orders were not treated properly by the exchange. We’ve seen the occasional cancellation on orders that weren’t requested such as yours.
Thankfully, this is a special situation, and we shouldn’t be seeing this type of behavior in the future. I hope this answers your original question about the order cancellation. if you have any others, please let me know with a quick reply to this email.”
I ended up buying Facebook shares when the price hit $32. Unfortunately, ShareBuilder.com couldn’t bail me out from this second mistake. Seriously though, I’ve got confidence in this stock for the long-term. I look forward to seeing what it does in the next six months.