Five Reasons Why I Would Not Buy Facebook Stock

Facebook is set to go public on Friday May 18, 2012 and a lot of people stand to make millions, and in some cases billions. There is a lot of hype surrounding this initial public offering (IPO). I’ve seen this before and I’m not impressed at all.

Here are five reasons why I would not invest in Facebook stock:

1. It’s an IPO.

An IPO is typically a high risk investment. No one can forecast with any degree of certainty which way the price will go once you plunk down your cash and own the stock. There is too much emotion involved and investment decisions should not be based on emotion.

2. What does Facebook produce?

Toyota makes cars. HP makes computers. Goldcorp produces gold bullion. What does Facebook produce?

It’s a social networking site and millions of folks have a lot fun connecting with their relatives and friends. I used to be one of those people but quit my presence on Facebook because I eventually concluded that it wasn’t for me. It was a time waster. I became bored with it.

I think that people will eventually lose interest in Facebook and latch onto the newest fad.

3. Facebook has no track record.

One of my rules is to invest only in companies with a solid track record of making a profit and paying dividends. Facebook does not meet this test.

4. Early investors are planning to sell their shares

Reuters reported on May 16, 2012 that the IPO size is being boosted by 25% and that many of the early investors in the company will sell their shares. This says a lot to me; it’s an opportunity for these folks to make millions and they’re taking advantage of it. I can’t say I blame them.

If they thought that the future looked great, would they not have wanted to own even more shares of Facebook? Instead, they're selling.

5. Zuckerberg

Mark Zuckerberg is obviously a very smart individual. However, looking at him dressed in a t-shirt doesn‘t inspire much confidence in him as an astute businessman. Putting on a suit will not make him any smarter, but one should dress appropriately. He is the head of what will be a major American corporation and I think that he should dress accordingly. If it does nothing else, dressing in a business-like manner shows respect for those who will willingly part with their money to own a piece of Facebook.

Bonus reason: there are better places to invest your money, solid companies which are profitable, and which pay dividends.

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Comments 10 comments

createmyeconomy profile image

createmyeconomy 4 years ago from USA, Australia

Interesting article. Steve Jobs did drugs and dressed like a hippie. Look at Apple stock??

tipstoretireearly profile image

tipstoretireearly 4 years ago from New York

FB will likely start with a pop, but I also have concerns about its long-run staying power. What are its moats against competition? Its own popularity seems to be the main one today, but social networking is a fickle beast.

Ramsa1 profile image

Ramsa1 4 years ago from A citizen of the World Author

Thanks for reading and commenting, Createmyeconomy. Point well taken. However, Apple makes real products that people love.

Ramsa1 profile image

Ramsa1 4 years ago from A citizen of the World Author

I agree, Tipstoretireearly. The hype surrounding FB going public should make us very cautious.

dan 4 years ago

I would say the only legitimate point made in this article is #4. #1, so every IPO in history has ended up a loser? #2 Facebook doesn't need to produce anything. What company doesn't spend money advertising through Facebook? We're talking about probably the most innovative thing to come out this century. It's a fad? Then why are industries like big pharma investing millions in learning how social ad mediums (reaching over 500 million people) can better reach consumers for clinical research and new drugs? I think people fail to realize how much private industry is tied into Facebook. #3 Neither did any great stock #4. Point taken #5. The modern day business model has changed since 1902:)BONUS, IT'S FACEBOOK.

Ramsa1 profile image

Ramsa1 4 years ago from A citizen of the World Author

Thanks for reading and commenting, Dan.

Opening day: 567,000,000 shares traded, opened at $42.05, popped to $45.00, and closed at $38.23. My guess is that in six months FB will trade at around $25.00.

Garrett 4 years ago

If i could have bought stock when all the corporate big wigs were i would have made a million too but how fair is it that we get to sit back and watch a bs company and a bs market get rich only for the money to run dry by the time we have our chance

Ramsa1 profile image

Ramsa1 4 years ago from A citizen of the World Author

Thanks for visiting and commenting, Garrett.

It's the individual investors who end up owning the stock and taking a great deal of the risk in situations such as this. I hope that those who bought FB today at $38 or higher don't get burned.

skylergreene profile image

skylergreene 4 years ago

They did get burned, and will continue to lose money. Reasons articulated here:

Ramsa1 profile image

Ramsa1 4 years ago from A citizen of the World Author

Thanks, skylergreene. My guess was that in six months FB will trade around $25. I was wrong; it will get there much, much earlier.

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