Greedy When Fearful

Groupon Falling For 4 Months After It’s IPO

On Friday, May 18^th 2012 Facebook (FB) will be making over 1,000 millionaires. Early employees, private investors, etc. have shares they bought for around $1 a share (or less). With Friday’s price probably easily hitting $41, this will be an instant 4000%+ gain. Forget Farmville, Friday will be Facebook Hot Potato.

Those insiders that are allowed to sell, will instantly sell their shares in the aftermarket to someone like me for $40. I’m going to buy a small position (about 2% of our total portfolio) to see if I can pass the hot potato to another sucker for around $60 or even higher.

Facebook reeks of Dot Com hysteria. Senior citizens, my friends, family, co-workers, everybody is talking about the Facebook IPO. Bubbles are a great way to make quick gains if you sell before the POP! This is a trade, something I rarely do. My strategy is to buy in the after-market at market open, then put in a stop loss market order right before market close price. What this means is, if Facebook opens at $40, closes at $60, I put in a stop loss at $55. If FB ever falls below $55 the eject button is automatically hit and I’ll easily have a 30% gain. Sure, this is nothing compared to the 4000% gain the insiders are getting, but, it’s still a possible 30% one day gain. Then, I’ll watch it for a year or so, wait for Facebook to come crashing back down to earth and be hated, analyze the fundamentals,  and find out if it’s an investment or not.

Now, I tried this strategy with Groupon (GRPN) and it completely failed because the stock went down after the IPO. I only lost 10% on GRPN before I hit eject so no big deal. But, Facebook is much more loved than Groupon.  Will Facebook really go DOWN after the IPO? Will I be the only person to lose money on the Facebook IPO because I was a sucker and bought in the aftermarket? All of the professionals say this is a fool’s game. But, I know I’m standing on top of a bubble, I think that makes it a Fools game.

Monty

5/21/201 ****UPDATE****

I never thought the peak of the Facebook bubble would happen before the after-market sale. I was initially excited that I was able to buy my shares at $42, thinking, it’s only 10% above the IPO price of $38. To my surprise the stock ended FLAT, at $38. It was a bad day for the whole market (S&P down almost 1%). But, the good news is, the public is smart. I was the sucker! They knew Facebook shouldn’t be worth half of Microsoft. They knew that if they were rich enough to have 100 billion to buy the company outright, it would take them one hundred years to make their money back. Right after market close a 15 billion lawsuit was announced against Facebook stating that they were tracking user’s activities even after users have logged off the site. Then, on Sunday, Jim Cramer on Meet The Press yelled that Facebook was a  “Sell! Sell! Sell!” even at the IPO price. I was hoping for an up market day which would hopefully boost Facebook but decided to be cautious and put in a $35 stop loss market order just in case it tanked. Well, today the S&P is up 1.6% and Facebook is down 11% to $34 and even further in the after-market. I lost a quick 15% but thankfully had some free referral trades to ease the pain. It’s only down from here! I wouldn’t be surprised to see Facebook at a 10 billion valuation over the next decade which would put it’s stock around $4.