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article imageOp-Ed: Whose fault is the Facebook flotation fiasco?

By Alexander Baron     Jul 3, 2012 in Business
Palo Alto - The flotation of Facebook was one of the most eagerly announced sell offs in history, but to put it mildly, it hasn't lived up to expectations. Whose fault is this?
Unsurprisingly, some people have blamed Mark Zuckerberg, the man at the top of the tree. Facebook shares were priced at $38.00, but soon fell to less than $27. Some people didn't just blame Zuckerberg, they sued him. It is possible there may be further suits, but what are these people griping about? Let's take a closer look.
First off, Facebook has a massive membership base. There are around 7 billion people on this planet, and over 900 million of them are said to be active Facebook users. That figure is nothing less than staggering, now here comes the but, and it's a big one. How many of those members pay a subscription or anything? Precisely. Facebook's income comes from where, exactly?
As might be suspected, most of it comes from advertising, and advertising is a fickle business. Facebook can hardly get much bigger, and even if it does, its income is unlikely to grow in proportion. Those with even slightly longer memories should have thought dot com bubble.
Leaving that aside, shares in a company are worth only what people will pay for them, it is a case of pure supply and demand. The big question is, why are people selling shares or prepared to sell shares below the launch price? These are largely (so-called) institutional investors, or perhaps that should be misnamed institutional investors. Shares in Facebook had actually been traded for three years before the launch, but not for ordinary members of the public.
These so-called/misnamed institutional investors are hedge funds, pension funds, unit trusts and so on. They buy and sell shares all day and every day, trying, hoping, to buy low and sell high. As they make the market by dint of their size, they cannot all win. The only way everyone can win is if all major companies, or the vast majority of them, make large profits. This has little or nothing to do with how often their shares are traded.
An investor is a person (or an entity) who invests, that means doing something, if only injecting capital into a firm as a sleeping partner. A person or a fund that buys and sells, buy and sells, maybe holding share only a few weeks, a few days or in some extreme cases, a few hours, is no manner of investor.
There are some people who do this sort of thing, albeit on a much smaller scale, on ebay. And of course, at the end of the day, someone will either have paid an exorbitant price for some obscure artefact and end up stuck with it - which is okay, if it is something he wants desperately - or someone will end up selling it at a loss.
Anyone who thinks the big banks or other institutions are any wiser than anyone else when it comes to making money on the stock market should read this article with particular reference to the lady who retired at 60 then managed her own portfolio, and the South Korean contest in which the parrot came third picking out shares with its beak.
The bottom line is that Mark Zuckerberg is not to blame for anyone or any institution who has lost money through buying and selling shares in Facebook. Nor this time are the banks, nor is the US Securities and Exchange Commission. People who play the stock market rather than invest in it, deserve all they get, or don't get, as the case may be.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of
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