Twitter is a good invention. It’s easy and fun. Much less demanding and intrusive than Facebook. So much so that many millions of people, from the famous to ordinary people like you and I, use it every day.
On the back of that success the Twitter company is doing very well. But recently it did even better when its shares jumped four per cent in a matter of minutes.
It all happened after a buyout story appeared on the internet that claimed that Twitter had received a significant offer. It started off, “Twitter is working closely with bankers after receiving an offer to be bought out for $31 billion…”
Investors piled in. And not just the amateurs, lots of the ‘professional’ Wall Street guys too.
The trouble was, however, that the internet story was on a bogus web site and was completely fake. The site was called “bloomberg.market”. It was not “Bloomberg.com” the official name of the web presence for the Bloomberg financial organization.
“Bloomberg.market” was what they call a ‘mirror’ of the genuine “Bloomberg.com” website. Whoever designed “bloomberg.market” set it up to look like “Bloomberg.com”. They copied real headlines and linked them back to the real dot-com website. With one exception: the fake Twitter story, which was dressed up to look like a legitimate webpage.
The spike in the Twitter share price only lasted about 15 minutes before Bloomberg denounced the story as fake and the share price dropped back to its previous level. But 15 minutes is a long time in the world of finance and plenty of time for someone to profit substantially from the scam.
No one yet knows who owns the dot-market domain – except the people who own it, of course – but it was registered just days before the scam message, using a proxy service called “WhoisGuard”, based in Panama, that protects registrant details by offering its own address and contact numbers. But the details of “WhoisGuard” on its own website at “WhoisGuard.com” also appear to be fake, listing a telephone number that is disconnected. Emails to their contact address have not received a response either.
The significance of this incident is not that some greedy and stupid people lost money rushing to buy Twitter shares on the back of this fake announcement.
The problem is that so many new dot word domains have recently been allowed – hundreds of them in fact – that the whole internet is becoming bloated and confusing. And expensive.
If you are a company that wants to protect your online identity and integrity it could now cost you tens of thousands of dollars to cover all the permutations. Not many companies, even huge affairs like Bloomberg, will choose to do that.
That leaves the way wide open for cyber criminals to take advantage of gullible internet users.
I am certain they will.
Like the Twitter announcement, it’s just too good a deal to refuse.
Launched at the ridiculous price of $38 a share, or about 100 times the company’s earnings, the price momentarily made it to $45, but then quickly plummeted to $34.
In my post in May I suggested that the shares were worth more like $18 a share rather than $38. As of yesterday (August 16th) the price had fallen below $20.
Facebook stock has crashed
I’m not saying this by way of blowing my trumpet, because I now think that my $18 peg may have been rather optimistic too. Investors have by and large turned against Facebook.
Apart from the odd blip, the stock has been on a downward trend pressured by disappointing earnings and by the fact that from today the so-called “lockups” that have prevented some early Facebook backers from unloading their stakes begin to expire. This simply means they will be able to sell shares into the market and with around two billion shares eligible for a sell off between now and May 2013, with a big one coming in November, the signs for a price recovery are ominous.
In fact further falls are more than likely.
Those who can are shorting the stock like crazy. (Shorting is where your broker borrows shares which you sell immediately in the hope that you can buy them back later at a lower price.)
The number of Facebook shares on loan to short sellers has risen from 63 million a month ago to more than 93 million.
So is it a good buy now at $18? I think not. Not for a while anyhow, until these locked shares find their way into the market and the price stabilizes and that will probably be well into 2013.
In the short term the status quo is probably down down deeper and down.
Forget Facebook and enjoy some music from the 70s instead.
Fasab disclaimer: this blog post does not constitute professional advice as regards investments on the stock exchange, such advice would only be given and indicated thus if an outrageous fee were being charged and this blog is being given to you for free. Also any investor should always be aware that shares can fall as well as plummet and should act accordingly by not investing any money they can not afford to lose.
I should make it clear right at the start of this blog post that the person who was being accused of being an asshole was ME!
Of course, you know from reading my blog that such a description could never be applied to me ….ahem, however, a while back I had somehow managed to get my name on an “idiot” list of people who could be called about various scams and “investments”.
I suspect that one of those companies that would never sell your details, sold my details.
Well, as an unwanted consequence, I had cold callers by the square yard for a while.
And on and on and on and on it went for several months.
getting cold called
At the start I listened politely. I’ve had to cold call people on a few occasions myself and I know what a horrible job it is, so I answered their inane questions, pretended I was vaguely interested in what they had to say, but eventually declined all their more than generous offers.
Man, if only I had done a few of those investments I would have been richer than Bill Gates by now – or broke a lot faster!
But as the weeks went on, a bit like the telemarketers I wrote about in the cunningly named “Telemarketers”, my patience ran out. I started to say up front that I wasn’t interested and couldn’t afford it and if they couldn’t take that hint, I hung up.
However there was one particularly unpleasant young guy who worked for an investment brokerage in New York. He probably had never made it farther than Manhattan in his life, but he was an authority about everything, about everything, about everything. You know the type. And like most people so endowed he actually knew hardly anything at all.
So one day he phoned me up. I must have been at a bit of a lose end (before my blogging days!) so I listened to what he had to say. He had spoken to me before, but didn’t remember, so I knew his patter and what was coming and therefore was well prepared with my answers.
Was I interested in investing? Yes, absolutely.
Had I ever invested in the stock market before? Yes, indeed I had.
Had I any stocks at the moment? Well, no, not at the moment. I’ve been waiting on a “really great deal” to come along.
Of course, I knew he had a “really great deal”.
“Terrific!” he said. “Because I am about to offer you a really great deal!”
Am I psychic or what?
I have a great deal for you!
Naturally I got a little excited at this wonderful news and wanted more details, like pronto!
Ah, but first he had a bit on his cold call sheet to quality investors.
What kind of amount was I comfortable with? How much did I normally invest?
I knew this would be where the fun would really start. So I said that it depended on the deal, if it was good enough then it could be a decent amount.
That wasn’t good enough. He wanted to quantify it.
“Would you be comfortable with something in the $5000 range?” he asked.
“Not really,” I said, then hearing him deflate on the other end of the phone I followed with, “No, if I’m interested, and there’s no guarantee that I am because you haven’t told me anything about this investment, it would have to be a much bigger amount than that.”
Almost immediately I could hear the vacuum pump activating and re-inflating him.
Now he was sure he had hooked a whale, but tugging on his line was just the big bunch of crap I was giving him.
Then he told me what the investment was. Some pharmaceutical company that was about to go into orbit once a new drug they were working had been perfected and FDA approved and all that rigmarole.
If you don’t know about these things, firms like these who cold call hyping some obscure share or other are on a BIG percentage of the price they get. Could be as high as 75% in some cases. The shares are usually completely worthless and virtually unsaleable on the open market so if you are foolish enough to buy them you are stuck with them and the chances of the company coming good are millions to one. Better to buy a few lottery tickets.
So he could do me a great deal on these shares. They had been trading at up to 90 cents a few months ago (I presumed on IMDAQ, that’s the imaginary stock exchange) but his company had managed to secure some at a fraction of that price. If I were to invest say $50,000 I could get them at 30 cents.
Boy was I interested?
No, not in the slightest, but I didn’t tell him that.
What I said was something like, “Yeah that sounds okay, but for that level of investment is that really the best you could do. What if I could get a few friends interested and maybe raise $100,000? Could you sweeten the deal on your end?”
I got the feeling that this was the most exciting thing that had ever happened to this idiot. He could hardly contain himself.
He talked and he talked and he better talked.
Unsurprisingly he could sweeten the price a little for that level of investment and the price duly came down to 25 cents per share.
I wasn’t very impressed. I asked for a better deal.
This time he would have to consult his supervisor to see if he could get a better deal on the share price, so the line went dead for a couple of minutes (a well known sales ploy) and then back he came, 23 cents was the best he could do.
“So that’s 434,782 shares for the $100,000?” I asked. Our calculators agreed the number.
“It’s good,” I told him, “But for that sort of cash I would need at least half a million shares, probably more.”
“Let’s not play games,” he said, ready to make another counter offer.
“Why not?” I asked. “I like playing games.”
“Huh?”
“Yeah!”
“You like playing games?” he asked, a little confused.
The penny was very close to the edge but it hadn’t quite dropped.
“Yeah, don’t you?” I answered happily. “This has been fun.”
“What?
…..WTF?
…..You mean you’re NOT interested?”
“Well I did say up front that there were no guarantees,” I reminded him.
“But?…. Why did….? ….”
Short pause.
Silence.
Sound of penny finally dropping.
Then, in a very high pitch girly kind of voice,
angry and shrieking like a girl
“You’re a f****** asshole!”
CLICK!!!
He was great fun. But, alas, he didn’t want to play any more because he never called again ;(
First of all, well done if you were one of the people who tried out the quiz. I hope you enjoyed it.
Today’s blog, if the alliterated title full of “f” words hasn’t given it away already, is regarding financial matters. No, hang on, stick with it. It’s not that bad really.
Were you one of the “zuckers” who bought shares in Facebook? I hope the answer is no, because it is another example of the stupidity and madness that greed can provoke in people who should know better, but frequently don’t.
Zuckerberg Pre-IPO
I can’t predict the future, but I knew that the Facebook IPO would cost a lot of idiots a lot of money.
The IPO launch price was tagged at $38 per share or something like 100 times the company’s earnings. It is easy to know why they priced it so. They set the price that high because they thought they could get away with it. Because the herd, unknowing and unthinking, would swallow the crazy hype about the company and buy, buy, buy!
Does that show more than a little contempt for the people you want to invest in your company? Sadly I think that it does. Not that it is all down to the greed of Zuckerberg. The advising and underwriting banks had a lot to do with it and we know for a fact that they have nothing but contempt for ordinary mortals like ourselves. We are the marks, they are the conmen!
Usually they take the time to milk us dry before abandoning the market and leaving the ordinary investor to lick their wounds. But this time it happened fast. Within hours in fact!
Those who were not in the “loop” and couldn’t buy pre-launch, waded in on launch day and bought, bought, bought from $38 right up to $45 which the shares reached for a couple of minutes.
zucker
The poor fools got whacked almost straight away.
The market very quickly began to realize it had been conned, that this was not a LinkedIn IPO and the issue price had been set far, far too high to ever double on launch. An element of sanity crept in. Facebook promptly started to fall, by about 11%.
In other words if you’d invested $1000 in the morning you would have turned it into $868 in the space of a few hours. If you were unfortunate to buy at the peak price, your $1000 would now be worth just a little over $700. OUCH!
Zuckerberg Post-IPO
But it wasn’t just individual investors that got caught. Almost every large mutual fund etc., most of which are run by, let’s be kind and say, poorer quality managers, felt compelled to purchase Facebook shares, not because they though they were a good buy but because they saw other idiots doing the same and they were frightened about the possibility of missing out “the next Big Thing”.
Little do most investors realize, but the situation could have been even worse had the price not been artificially propped up for a while by the investment bank underwriters.
For the benefit of those who aren’t investors and/or who don’t know how the market works in things like this, here is a quick summary. IPOs are underwritten by investment banks like Morgan Stanley. The investment banks therefore have their reputations on the line. If the IPO goes really badly so does their reputation and their chances of being asked to underwrite future IPOs (and they get huge gigantic enormous fees for this work so they don’t want to lose it.)
Trust Me I’m A Banker
Thus, in the case of Facebook, when the share price stopped climbing and quickly fell back to the $38 launch price, the investment bank underwriters stepped in and bought heavily. Without their intervention Facebook could have fallen catastrophically on its first day of trading.
Facebook does generate cash, mainly from advertising revenue. It has a vast following and that advertising revenue should rise substantially over time, so the company may one day be worth the $38 and even more. Google launched at $85 and is now worth $600, but it is a proven quantity revenue-wise and the price rise took time.
But, and it’s a big BUT, Facebook would need to be a hell of a lot better managed than at its market launch.
Thumbs DOWN Facebook stock IPO crash
But for now, I’m with my other “mad” friend Jim Cramer of Mad Money fame who rightly and sensibly advised a pass on the Facebook IPO. There may be a time to buy into Facebook, but the writing on my wall says “not today thanks”. Booyah Jim!
Jim Cramer “Booyah!”
There’s an obvious question that I haven’t addressed. It is, “So what do I think Facebook is worth?” Well for what my opinion on these matters is worth (i.e. probably not much) I would peg the value at a lot closer to $18 than $38. I may be right, or I may be wrong, but I really don’t care because I haven’t bought any. I might reconsider if it the price comes a bit closer to my valuation, but it’s only a might.
The small print. (I know it’s just the same size, WordPress didn’t tell me how to change it.)
Fasab disclaimer: this blog post does not constitute professional advice as regards investments on the stock exchange, such advice would only be given and indicated thus if an outrageous fee were being charged and this blog is being given to you for free. Also any investor should always be aware that shares can fall as well as plummet and should act accordingly by not investing any money they can not afford to lose.
fasab 