Op-Ed: Facebook investors should take responsibility, keep faith

Posted May 26, 2012 by Justin Crann
A botched debut and a week of dismal performance on the markets has compelled early investors in social networking site Facebook to brandish their knives.
Facebook celebrates its IPO on the Nasdaq
Facebook celebrates its IPO on the Nasdaq
Courtesy Nasdaq livestream
Following a poor first week of trading, Facebook and its underwriters are facing a class-action lawsuit that accuses them of misleading investors, the Los Angeles Times reports.
Others are blaming NASDAQ, the market on which Facebook is traded, for a glitchy debut day that saw a complete blackout of communications for the first thirty minutes of trading, and a persistent lack of clarity throughout the day.
The underperformance of the stock on its opening day has drawn a great deal of criticism. It has been said that the IPO was overhyped, that Facebook missed an opportunity, and that the stock should trade below $14 a share.
The complaints are serious enough that the United States Senate is investigating the IPO's launch day, looking for an answer to what is increasingly becoming the big question: who is to blame for Facebook's stock collapse?
While investors wait for their answer, they should also be taking some of the responsibility for their losses, for a number of reasons.
For a start, nobody forced investors to buy in to Facebook. As with any expensive enterprise, caution should have weighed in on the decision to buy. As is now evident, it did not.
Consider Michael Hines, an investor who told the Associated Press that he ignored initial doubts and bought in to the stock anyway, only to regret his purchase afterward.
"I knew it was grossly overpriced. I could feel it a couple days before," he said.
The fact of the matter is that Facebook was heavily hyped, and to a point where it couldn't have possibly met the expectations set for it – something that investors should have suspected.
Instead, investors looked to LinkedIn as a bellwether for how social networking stocks would perform, disregarding the fact that LinkedIn is much more than just a social network, and that it was the first site of its ilk to go public (and could, as a result, exploit untested ground.)
Further, though there are many factors that can influence a company's performance on the markets, investor confidence likely weighs heaviest on a company's value, and the widespread panic over Facebook's less-than-expected debut would not have helped to drive interest in the company or promote the purchase of its shares.
That panic, harnessed by the media, quickly became the focal point of the Facebook story, spurring some investors to sell, and distracting those who have kept the faith from the good news: since its first day on the markets, Facebook's shares have actually regained value.
Further, with a few quick moves – the acquisition of games developer Zynga, whose shares were believed by many to be a proxy for the social networking site, would be a great start – Facebook could easily find itself back on solid footing.