I've always tried to avoid being one of those people that say "I told you so"...God knows I've made too many mistakes in my life to be that arrogant; I merely want to point out the benefit an investor gets from considering the "other side of an investment idea" or the "what could possibly happen". I say this because I wrote last week that I thought investors should steer clear of buying Facebook stock on friday when the company came public. Well the stock came out priced at $38/share, moved up for a small bit of time to almost $42, and then it traded back down to right at the price it came public at ($38). While the stock wasn't DOWN on the first day it traded, this was by no means what all the talking heads on t.v. predicted. Most stock market pundits thought the stock would be wildly popular and would be up big for the day. After talking to several other money managers and researching to see how other social media companies traded after their IPO (Groupon, Linkdin, Angies List, etc), I wrote about how I thought that after the initial pop at the open of trading, the stock would move down in price. Well, a blind squirrel finds a nut every once in a while and this morning Facebook stock is down 10% to under $34/share; this is what I was afraid would happen. Here's the problem, while everyone (including all my friends) love Facebook, it is still somewhat unclear how the company is going to monetize their 900 million users. Basically, investors are curious as to see how the company grows and increases their revenue, which is how investors value stocks. So now, as I look at Facebook stock price at $33/share, I'm glad I didn't get caught buying high at the open and then stuck down $7 the next day...
I guess the important thing to remember is that you always need to avoid getting emotional when it comes to investing; just because you might love how Facebook allows you to keep in touch with your friends or tell someone how much fun you had over the weekend does not mean that it might be a good investment. At this point, with the stock trading around $33, I still wouldn't buy any right now until the company can show how they plan to make money (not to mention General Motors, which was one of their biggest advertisers, released a statement on thursday how they were pulling all their ads!!).
In other technology news, Yahoo announced over the weekend that they were selling 20% of their Alibaba stake (the Chinese search engine business they own part of) back to the company for $8 billion dollars and new stock in the company. This is FANTASTIC news and shows how the company is working to increase shareholder value and get the stock price up. When the news was released several financial firms came out with positive notes on the development and raised their price targets for the stock to above $20/share. As I've written before, I think Yahoo will ultimately trade up to the low $20's over the next several months. I'm not buying any more stock today on the heels of the good news but I would increase my existing holdings if it were to move down to around $14/share.
