Tuesday, May 29, 2012

Do youI feel lucky? Well, do you punk?

I tend not to focus on individual companies because there are so many variables surrounding each company that influence the share price.  For me, it's much easier to spot long-term trends that influence all asset prices (including stocks and bonds).

That being said, Facebook remains on everyone's screen since the bank's decided to give up defending the $38 IPO price.  It wouldn't surprise me if the stock was $45 or $20 in a week because Facebook is going to be a stock driven by emotions.  People paid a huge premium at the IPO for the chance that Facebook will earn a great deal of money 5 years from now. 

What's particularly scary is that this was supposed to be the stock that brought the "little guy" back into the stock market.  The business isn't complicated like Cisco or ExxonMobil so it has broad retail appeal.  Many investors use Facebook and that makes them think they are instant equity analysts when it comes to the stock.  However, when some bad quotes crossed my screen on the morning of the IPO (some German quotes of 50,000 Euros valued the company at more than all of the economies of the world combined) I knew that the little guy was going to have a tough time with this IPO.

The stock as cracked it's IPO price and it literally can't catch it's breath now (down another 9.6% just today).  At some point in the low-mid 20's there will be buyers of the stock and eventually they may outweigh the sellers, but we have not reached that point yet.  More disconcerting for me would be the fact that 80 days close to a billion shares of that are currently subject to lock-up will become freely tradeable and if you are an insider at Facebook and you've seen the company fall in value 25% in a week maybe you'll try to diversify by selling a little more Facebook.

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So, what's up with the markets?  They've jumped about 3% in the past 3 days on relatively bad news around the globe.  I have a theory -

The major money managers have nowhere else to go.  Europe is a trainwreck, China is slowing, India is in freefall, etc, etc.  So what is the big money manager to do?  Invest in Japan (good luck) or the US.  As money flows into the same, "safe" investments (big funds in names like Apple are at an all time high) it will drive these names higher.  There is a great deal of risk in this scenario if the global backdrop changes and everyone heads for the exits at once, but I think this is at least partially driving the action in the US today.

Cheers!

1 comment:

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