YOUR MONEY

Facebook IPO - fool's gold


As the IPO for Facebook approaches, analists on radio and elsewhere are divided.  Some hype the chance to buy shares of the great facebook, while a few raise warning signs.

On 680 News Raido Thursday morning -- before the IPO -- 2 startling turths were revealed by bearish analists.

1. The public will not get 'access' to the IPO shares until 'preferred clients' get them first, so they can RESELL them to the public.  This has been a growng trend of late as Banks, Sovereignty Funds (i.e., the investment trusts owned by various countries), hedge funds, billionaires and the like get 'priorty' and 'behind closed door' chances to buy up huge stakes at discounted prices.   They then resell them to smaller investors at a profit through the 'open market' of the stock exchanges.  (See http://money.cnn.com/2012/05/17/technology/facebook-ipo-final-price/index.htm).

So you or I do not get a fair break on IPOs any more.  We become the suckers! (See point #2 below.)

#2 The posted IPO value for Facebook shares is so inflated that at least one analyst spoke up today.  The ratio is some 70 to 1 compared to earnings. Usually, anything over 17 to 1 is considered as 'highly speculative' and a 'high risk gamble'.

I don't expect Warren Buffett to be buying in.  He cares too much about his money and his company to ride this roller coaster.

The same commentator, by the way, mentioned that most recent IPO share prices have tanked within 2 years.

So don't be a lemming unless you want a facebook share to stick on your wall. 

PS: Don't trust me or any analyst; check it out yourself  first.