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Why Facebook is a Risky Investment

With a stock like Facebook, do not get greedy - that is when you will lose.

I was working the trading desk when Netscape was an IPO. That was a crazy day. One investor placed an order in the morning and by the time we received a fill notification the price was below where he bought it. He lost $20,000 in a few hours. Today, Netscape is non-existent.

There are many stories like this out there, so be careful if you are one of those looking to make a quick buck on any stock. I remember buying Yahoo at $20 per share and watching it grow to $450 (pre split). I rode that stock all the way down to $120. Yes, I made some money, but people jump into these stocks thinking this is the next big thing. It may be, but to me, Facebook is old. With all the hype of the Facebook IPO, this is one investor who will be watching from the sidelines. I love taking a risk, but not this time and this is why.

1) Mark Zuckerberg. Here is a guy who seems to have a small control problem. Although he only has a 28% ownership in the company, he controls 60% of the voting rights. From what I have read about him, Mark is a little arrogant and may not be open to suggestions. He seems like a my way or the highway type guy.

2) Revenue. According to last week’s Milwaukee Journal, Facebook earns $4.30 per user. Yes, there are millions of users, so that should be good, right? Compare that to Google, which makes $30 per user. Given those dollars and cents, Facebook should trade roughly 1/7 of Google’s price, or in the $80 range. Yes, I know the IPO will pop, and I am guessing will quickly be in the $100 range, but once the fad dies down, I look for the stock to die down as well.

3) Again, Mark Zuckerberg. I just do not trust that guy. It seems each time I check my FB page, which is seldom, I have a new compliance thing I have to approve or opt out of doing. I feel Mark will try to implement something that borders on the ethical.

I am no longer licensed to make recommendations, so do what you want with your money, but I’m going to go buy a mutual fund and hope to replenish my retirement account. Good luck to those of you who are going to try and make a dollar off of this stock. I hope you make a fortune, I truly do. However, if I can give you one piece of advice, with a stock like Facebook, do not get greedy, that is when you will loose.

This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

James R Hoffa February 07, 2012 at 07:41 PM
Given the hype, it should at least be good for a few swing trades until it settles. I'll probably end up making a few round trips with this one, but not something I'd consider holding long term.

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