Avoid the Facebook IPO

QUESTION: Anton in Nashville is debt-free and still lives at home. He’s 38 years old with no kids and has $10,000 in the bank. He’s considering taking part of that and investing it in Facebook when Facebook goes public. Dave thinks a single-stock investment is a bad idea.

ANSWER: So does a roulette wheel. Do you know how an initial public offering works? Do you know what the stock price is as it comes out the door? It’s based on all these people thinking exactly like you’re thinking. What you pay for it already has all these hopes, dreams and hype built into it that you’re counting on.

I reckon I won’t be buying it at all. I think it’s going to shoot right through the roof artificially. It has nothing to do with the revenues it’s producing. I won’t be buying a dime of it. How do you know it’s going to shoot through the roof? I don’t know that it’s going to do that, but I think it’s artificial.

Listen, dude, if you want to play hype, you can play hype. I don’t play hype. I do investing with my money. I work too hard for it to gamble it and put it on the dice. You can do what you want to do, but you’re asking my opinion. I wouldn’t put a dime in Facebook. It’s probably the most hyped IPO to come along in the last 5–10 years. I can’t think of one that’s going to have more yakking about it. It’s probably going to be a mainstream news story, which means that everybody knows about this and all of those hopes, dreams and expectations are built into the initial price. The hype has already hit the price before you get in on it. It may or may not shoot straight up or may or may not shoot straight down after that.

You do what you want to do, but I know a ton about this. This is my whole area of specialization. I will not be putting a dime in it. The thing you want to put money in if you’re going to do something like that—and it’s still very risky with an IPO, I don’t do those—is one that nobody’s talking about. You buy in when it kind of just sneaks out there onto the market, and you buy in real cheap. Then the thing takes off, and it takes off based on it was off the radar and it was a sleeper. This thing’s not a sleeper; this thing’s a three-ring circus. No way. I wouldn’t play. If you’re going to play, put no more on that than you would on a lotto ticket or no more on that than you would a roulette wheel on a weekend playing blackjack in Vegas. I don’t do any of those things. I just work too hard for my money.

You know that’s the third question I’ve gotten today about Facebook? I’m glad I got to answer it. I put it right up there with the Iraqi dinar.