Is the Facebook IPO more hazard or opportunity?

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Is the Facebook IPO more hazard or opportunity?
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Facebook’s initial public offering (IPO) is the hottest one of recent years. But is this an opportunity or is this trouble for you?

I Googled ‘Facebook’ a little while ago and found more than 46,000 news stories on the IPO. The price has been pushed up and the number of shares being sold to the public has increased. It is, as they say on Wall Street, ‘way oversubscribed.’ If you compare the implied value of Facebook versus the profitability, buying the shares is an ultra high-risk purchase.

I also saw something on Dow Jones showing that private investors in Facebook are using this as an opportunity to sell half of all their shares. That means they think the price of the IPO is so high that they’re taking half of all their chips off the table.

‘Chips off the table?’ Yes, the gambling terminology is really appropriate. The reality is Facebook stock is priced for perfection. If you love the idea of a gamble, do it.

Because this IPO is so ‘oversubscribed,’ you can expect that prices will zoom higher in the initial days and weeks after it goes on sale. Some people will buy in and then sell in a matter of days to profit off the run up. But once the frenzy wears off, a company has to stand on its own two feet and its anticipated likelihood of future earnings.

The high price of this IPO makes this like buying a lottery ticket. So if you like gambling, that’s what you’re doing. Could you make serious money? I don’t know. Just know this is not normal investing. My advice is know what you’re getting into. And never put more at risk — in any investment, be it Facebook or anything else — than would keep you from sleeping at night if you lost all that dough.

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Clark Howard About the author:
Clark Howard is a consumer expert whose goal is to help you keep more of the money you make. His national radio show and website show you ways to put more money in your pocket, with advice you can trust. More about Clark
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