Worried Facebook investors ponder over next move
The response from small-time investors to Facebook's debut as a public company has been equal parts frustration, confusion and bitterness.social media Updated: May 28, 2012 18:14 IST
The response from small-time investors to Facebook's debut as a public company has been equal parts frustration, confusion and bitterness. Fed up, some are dumping their shares and accepting the losses. Others, while miffed, are holding on and hoping to ride the stock's eventual success.
Some blame themselves for embracing the hype over a company whose underlying value likely didn't merit the price at which it went public. But many accuse Facebook and its underwriting banks of setting the price too high and for trying to sell too many shares.
Others are pointing fingers at the Nasdaq stock exchange for botching buy and sell orders on opening day. Or they're angry over brokers who pushed them to buy.
Michael Hines had felt uneasy about Facebook. He thought the shares were priced too high. Yet when the chance arose to buy into the company's $38-a-share initial public offering, he seized it. "I figured: Nothing ventured, nothing gained," said Hines, a retiree and private investor in Boston.
Now, he wishes he'd listened to his misgivings. Instead, Hines watched with dismay as the stock languished. He eventually sold his shares at $32.76, taking a loss on his investment.
His son, Brad, also bought shares on the first day, at about $40.50, and was also irritated with himself and with the investment banks that priced the shares.
Looking back, some individual investors say they recognise that Facebook's initial $38 stock price was too lofty. It was more than 80 times the company's 2011 earnings per share. The average for companies in the S&P 500 index is far cheaper, about 19 times its earnings.
Among those who blame their brokers is Joshua Freeman, who said he bought 200 shares in the IPO after his broker at Morgan Stanley Smith Barney asked if he wanted in.
"For him to call me and solicit me, and then for things to go so spectacularly stupidly, why am I paying him 1% of my money under management?" said Freeman, 51, an IT professional in New York. "If there is any allegiance here, it's more on the Morgan Stanley side than the individual investor."
Morgan Stanley disputes the allegations.
"We have clearly put clients' interests first by correcting pricing on some trades that were mispriced because of trading glitches beyond our control," the company said in a statement.
Before Facebook's public debut, some investors were considering what to do if the stock price doubled the first day. Instead, it closed a paltry 23 cents higher. It tumbled $7.23 the next two days. A week later, it still hasn't begun to recover. It closed Friday at 31.91, down 3.4% on the day and 16% below its initial price.