Facebook: Grow up and Smell the Carnage
A little knowledge is axiomatically asserted to be a dangerous thing; let me be dangerous. Here is an excerpt from a blurb received today via the National Association of Corporate Directors (a great organization; disclosure: I am on the New England chapter board):
"A bipartisan group of lawmakers called on regulators to overhaul the way initial public offerings are conducted," reports the Wall Street Journal(June 21, Eaglesham, Demos), "concerned that last month's flubbed stock sale by Facebook Inc. shows the current system unfairly punishes small investors." In a letter to SEC Chairman Mary Schapiro, Rep. Darrell Issa (R-Calif.) urged the agency to revamp rules for pricing and disclosure in IPOs. Separately, Sen. Jack Reed (D-R.I.) -- the Democratic chairman of a subcommittee of the Senate Banking Committee -- publicly stated that regulatory changes are needed to boost investor confidence sapped by the social networking giant's botched debut. According to the Journal, "the prodding from lawmakers puts pressure on the SEC to rev up its scrutiny of the Facebook deal. Officials are examining technical glitches on the Nasdaq Stock Market that caused chaos during the stock's first day of trading that left some investors unsure of how many Facebook shares they owned -- and at what price." In addition, the agency is reportedly investigating whether the underwriters broke any rules by allowing warnings from research analysts about Facebook's business prospects to be passed along to handpicked clients, but not the general public."
SO--let me see if I understand. The primary complaint is that trading glitches prevented avaricious short-term investors from effectively flipping the stock for a quick profit.
They were prevented from doing so with respect to a stock so grossly hyped that every person who was awake and read a newspaper, a magazine or a blog knew that it was volatile at best and possibly very overpriced.
The conclusion being reached is that one class of investors, the small public investor (who likely could not get his hands on the stock at $38 anyway) was prevented either from buying the stock or flipping the stock for a quick profit.
Rep. Issa, the putative champion of the little guy, thinks we need laws to prevent this.
What one needs here is either a repeal of the laws of human nature or, alternately, an anti-capitalist mandatory substantive review of public deals to both attempt to mark them to market and to make sure that retail investors are denied access (rather than encouraged). But that would be anti-American.
As I write this, Facebook is under $32; it came at 38 and its high was 45. Who should be investing in this stock? Who shoud be allowed by law to invest in this stock? Is this stuff that the Congress should care about? Pass MORE regulation, driven by people who at the same time decry over-regulation of our capital markets?
Maybe it is time to grow up. Capital markets are extremely risky and depend on some people being smarter and quicker than other people. Retail investors by and large will not be among the smarter and quicker. They lose and under our system they must play so -- grow up and live with it.