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Monday, May 21, 2012

Facebook Falls on 2nd Day of Trading

If Facebook is or is not a high quality long term growth stock is hard to tell at this point. Facebook has lot of growth potential on the user front, with the potential to grow way behind its 900 million current users. It also has alot of convincing to do in regards to showing its revenue growth strategy via advertising and other means.

Facebook came out last Friday with an IPO price of $38/share and ended the trading day very close to that $38/share price. Today it fell almost 10% bringing it  well below its initial $38 price.  

Regardless if Facebook is or is not overvalued/undervalued is a topic that will remain to be seen, depending on how Facebook grows and moves forward over time with its strategy. 

What this whole Facebook hype has reiterated to me and many in the professional investment community is that you have to be very prudent about investing in any IPO and especially extremely speculative ones at the beginning of their public trading life cycle.

Typically, when any investment is becoming so popular that you hear people talking about it at family gatherings and the weekend BBQ, more often than not right now is not the best time to be buying that particular stock.

Investment returns are not made in one off price appreciation but gradually over the long term.

 

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