On the other hand, it's hard to work up sympathy for the woman in the story. Yes, she wasn't privy to behind-the-scenes details. But it sounds like she put less research into her $200K "investment" decision than she did with the last car she bought. The Atlantic may have left out the details of her late-night scouring of web pages for information, but as a proxy for retail investors in general it's probably accurate.
Here's the only thing a retail investor needs to know about IPOs: FB isn't the exception, it's the rule. Buy an IPO on opening day and the vast majority of the time you're going to lose money. Why? (And I wish I could bold and underline this.) Because the IPO isn't to make you money. Stay the hell away from them unless you know what you're doing. And you probably don't.
EDIT: maybe I'm mis-remembering, but didn't the problem of mobile users and ad revenue come out before the IPO day?
> Scott Sweet's multi-billion dollar hedge fund client flipped the stock at $42. His subsequent short made his firm its "largest profit of the year," Sweet said. There's "no way" a retail investor could have known about the lowered projections, unless he or she "had a friend at a multi-billion dollar institution," he added.
Please explain to me, when information is withheld from the purchasers and only specific clients notified as to circumstantial and meaningful changes to the state of the offering, how anyone could ever "know what you're doing?' In fact, Morgan Stanley was actively misleading investors by continuing to adjust the specifications of the offering to make it look better.
Analogy: If an automaker produced a new car which was secretly designed to become worthless (engine would fuse together) after 3 months and only told one rich people not to buy it, would that be fine? What if there come back was 'you could always open the hood and see our computer components which execute after 3 months, its not our fault you don't know what you're doing'
The reduced revenue estimates were public information; I recall reading about them myself before the IPO took place. If someone had put me in charge of billions of dollars and told me to take a position on the Facebook IPO, I would have shorted the stock, as many others did.
The crux of the issue is that wealthy institutional investors had analysts at their disposal to point out the revised revenue estimates, and retail investors like Swaminathan didn't. Retail investors were ill-prepared for the IPO, and they got burned.
As a retail investor, it is your job to find someone who knows what they are doing and can teach you how to invest or manage your investments for you. After that, if you are investing over 10% of your portfolio in one stock you are asking to be broke.
Your car analogy doesn't work because there is really no way to diversify your car whereas there are plenty of ways to avoid this kind of bad decision with your investments.
Were insiders withholding information? I'm not going to argue one way or another. How do you "know what you're doing"? Start by knowing that insiders would stick it to their own grandmothers if they could get ten cents more per share. But when one's whole strategy is to hope for a first day "pop", that's playing a lottery ticket, not investing (exhibit: Zynga). For one, if one buys after the opening bell, you're not going to profit from the pop, you are the pop.
> and came to know of the phenomenon known as the first day "pop." On the day that companies would debut on the stock market, the price would tend to shoot up before stabilizing
If that is really the limit to her research, I'd have the same sympathy as someone who put their life savings on black and complained when it came up red.
And seeing as investment 101 is "diversify", it seems very likely she really did put that little thought into it.
I've noticed that the answer to this from others is always "should've done more" whenever a victim (of luck, of poor planning, of circumstances, whatever) dares speak up.
Did a group of people knowingly screw you over on your mortgage? Your fault. Did a group of people knowingly suggest surgery you didn't need? Your fault. Did a group of people knowingly conspire to screw your stocks? Your fault.
Curious American pathology.
But trying to outsmart people living in Bloomberg terminals at their own game, buying on IPO and trying to dump it the same day? Her loss is no ones fault but hers.
It's a real bummer for this lady, and I hope she can figure out how to manage her losses without drastically affecting her life, BUT she committed a classic textbook error in stock trading.
http://www.businessinsider.com/exclusive-heres-the-inside-st...
NASDAQ had problems filling orders. People and institutions didn't find out their orders were filled until hours later.
For more context, the real title of the article is "Facebook, One Year Later: What Really Happened in the Biggest IPO Flop Ever."
She'd never placed such a big bet on just one stock, but she felt a personal
connection to Facebook. She had been using the site to connect with family
and friends since 2009, and almost everyone she knew had an account.
========================
She turned her attention to her computer screen only to realize that there was no sign of her having voided the order. She kept refreshing the page in hopes of seeing the notification. When no cancellation report appeared, she called her stockbroker at Vanguard. "What's going on?" she asked.
If the cancel order was placed, then it's probably cancelled, the broker told her. She got off the phone and went back to her computer screen. There was no sign of cancellation. She called Vanguard again. This time, she says, she waited on the line for a long time, but no one came to take her call.
Meanwhile, Facebook stock opened at 11:30 a.m. The mysterious delay was due to technical glitches. NASDAQ's electronic trading platform couldn't handle the high volume of trades. In the first 30 seconds, around 82 million shares were exchanged.
==================
Am I reading this correctly that she attempted to cancel the order and it just failed? Is that really tolerable?
"Her son advised her to hold onto her shares until she either resolved the matter with Vanguard or the price bounced back."
That would be an interesting malpractice lawsuit, mom vs son. Just sayin.
How dare her trade not profit! I know, file a lawsuit for a 400% rate of return for, um, well, not winning in the casino, thats what.
This is what is known in the business as catching a falling knife. By the time the legal stuff wrapped up, she lost more like 90% of her life savings as the stock cratered. A legal maneuver attempting to cash in on the situation was the gamble that lost most of her money because she caught a falling knife and stubbornly refused to let go. Really its two back to back gambles both of which failed.
It's standard to blow up the damages figure in the initial lawsuit filing. Big companies do this EVERY SINGLE TIME. Yet this woman does it and she's the greedy one who won't take responsibility?
Vanguard had one job here, they failed at it, and they should have either settled with her for her first-day losses and no punitive damages immediately or lost in the lawsuit with bigger damages eventually. Of course, the game being what it is, they just won eventually.
The problem as I understood it:
(1) Consumer brokers often consolidate trades/buffer them up and send them on
(2) More centralized entities actual have access directly to the trading systems and execute these batches of trades coming in
(3) The trading system does it's magic and responds
My understanding was that (2) and (3) became _incredibly_ overwhelmed and latency spiked, queues filled, and trades took _forever_ to go through.
Unfortunately, the consumer broker is stuck at the mercy of waiting for responses from (2). So yes, they can take in customer requests, but they are not the ones that finally execute and latency can become huge.
Meaning, a "pop" means the IPO was priced too small, giving the early investors/founders/employees a low price, and giving the first-day IPO purchasers (who did no work, & are just gambling) the benefit of that new, higher price.
No "pop" means it's priced about right, and serves the interest of early investors, who took far more risk & often built the company.
A "pop" does not necessarily mean the issue was underpriced. Besides, an increase in share price benefits the founders too
This issue didn't just fail to "pop," it subsequently tanked which suggests that it was overpriced/oversold and while Facebook, Inc. received more cash for the offering, the net value of the enterprise was worth less because of it.
Stock is a form of currency too. For compensation, acquisitions, and more. I think Facebook was out to get all they could, probably still expected a pop (hubris) and the bankers who did the issue let them because they're all shells of their former selves, and they were hedged with the way the deal was structured anyway (greenshoe).
Think of it in terms of taking a cash-out refi on your home with an artificially inflated appraisal. You might maximize the cash you can get, but what's the value of that cash when the actual value of the house is realized and you're at break-even or worse, underwater? Is the bank just "doing their job" structuring deals that way?
http://www.sec.gov/Archives/edgar/data/1067983/0001193125132...
Only a fool plays the stock market without access to insider information