What's Really Wrong With Facebook Stock and Their IPO?

by Rick McNeely

     First of all, I love Facebook! Like many people, I've been able to reconnect with some old friends while seeing what other friends are up to. I visit Facebook everyday, but does that make Facebook a good investment?

Time will tell if investors were able to share in the social media phenomenon and I'm the last person you'd want to take investment advice from (my investment history could best be described as undisciplined). As a younger man I thought if one was investing wouldn't it be smart to learn from the best? Considering his 13 year career with Fidelity Magellan and an average annual return of 29.2%, I'd say Peter Lynch would arguably be one of the best. Two rules I remember from Lynch's books were:

Invest in what you know - The thought here being, if you are an educated customer of the company you may have insights that keep you ahead of Wall Street.

Be able to explain the stock you're buying -  Before you purchase a stock be able to state aloud how the firm generates revenue.  See rule number one, you should know what you're investing your money in.

So what do we know about Facebook?

You get to: See other people's vacation and holiday photos - I remember being a kid and the pain of having to politely watch other families or relatives vacation slide shows. Now you can look at complete strangers vacations and family photos.  

You get to:  Hear about what friends are eating, illnesses, bad luck and thankfully joys.

You get to:  Become familiar with people you know (and their friend's) political views.  What could possibly go wrong?

You get to:  Display your support of various worthy causes by passing on images and statements about said worthy causes.  Please pass on a link to my blog if you support bald-headed, aging men.

You get to:  Say "Happy Birthday" by exerting the absolute minimum energy.  I like this as I think I freak out people whom I haven't seen since 3rd grade by wishing them a Happy Birthday at 12:01am.  (I'm watching you Mary)

Best yet, you get to comment or "like" each of the above posted on Facebook.

How does Facebook make money?

I think this is the most challenging question to the general public (that would be most people flocking to the IPO when it was over $39 per share). In summary, most people don't have a clue what makes the cash register ring at Facebook. When you tell them online advertising generates most of the revenue, they'll have a better idea. The ads are on the right hand side of the page, “you know the part of the page you never look at or click on.”

All in all, sounds like a good investment to me.