Facebook IPO the Perfect Investor Trap

We’ve been going back through Proverbs and have yet to find any guidance there on whether or not it’s a good idea to make a play for Facebook stock when it hits the open market for the first time in a few weeks. Tongue planted firmly in cheek there, because savvy investors should realize the potential for a financial trap in the early days of trading.
ying to get in at the beginning is that it’s a sucker bet, no matter how high the share price might soar. To those of you who remember the heady days of the late 1990’s when the dot.com bubble was in full swing, the Facebook IPO arrives with similar fanfare.

Keep in mind this is not to say Facebook is a bad addition to your portfolio. We can speculate all we want right now but no one really has a clue what it will do long-term. The problem with tr

There are a few predictable developments when there’s this much pent up excitement about an initial public offering. The first thing to keep in mind is that retail investors like you and most of the people you know don’t have an ice cream cone’s chance in the desert of actually being able to buy Facebook shares at the announced first price, which looks like it will be between $28-$35 dollars per share. Sorry. That price goes to company insiders with names like Zuckerberg (no one blames him for that) and institutional investors.

The moment NASDAQ opens for business with Facebook listed as part of the index, that initial price becomes history after the first few tenths of a second. Retail investors are going to be sitting out there, perhaps by the millions, clicking wildly away at their E-trade or Scottrade interface to buy, buy, buy, and the NASDAQ computers can only process orders so fast. If you enter a market order to buy a certain number of shares, it could easily get filled at a hundred or more dollars higher than what you wanted to pay. And it you place a limit order, it’s likely to go unfilled.

If you want to invest in Facebook, give it a few weeks or months to get rid of the initial euphora, then we’ll start to see what kind of actual price stock shares can maintain.

The Solomon Success Team

Flickr / BlatantWorld.com

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