In just one week, investors will get the chance to own the social media phenomenon that is Facebook. The question is, should you?
A survey released on Thursday by The Motley Fool, an investing advice website and community, asked individual investors if they plan to buy shares of the ubiquitous website.
From the press release:
The survey found that investors with less than one year’s experience investing are roughly twice as likely to invest in Facebook as investors with more than 20 years’ experience. Four out of ten (39.5 percent) novice investors said they plan to buy Facebook shares versus just two out of ten (22.2 percent) investors with a couple decades of investing under their belt.
According to the survey, one-third of investors say they won't be buying Facebook stock. Their reasons include: all the hype surrounding the IPO; they think the company is overvalued, and the business model is too mysterious.
And some people just don't invest in IPOs.
That may be a good rule to follow: Investing in a newly public company can be more risky than buying those with a long history. Plus, it's a social media company, a brand-new industry.
Quite often, IPOs skyrocket in price right out of the gate: case in point, last May's LinkedIn debut. The IPO price was $45, and it closed that day at $94.25. Through the course of the year, the stock price dipped as low as $60 per share. It closed Thursday at $110.50.
The volatility of IPOs may be unexpected by novice investors, and critics have contended that the company is overvalued. On the other hand, it could be a great deal and go straight up and never look back.
A few lucky retail investors will actually be able to get in on the IPO through discount brokerage E-Trade, the website CNN Money reported earlier this week in the story, "How small investors can get in on the Facebook IPO."
To go that route, money will need to be deposited five days ahead of time, and there are a couple of other hurdles like suitability standards to be met. So get going if that's your plan.
After the IPO, anyone can buy shares and take on all the associated risks of buying an individual stock. Before buying, check out the Facebook S-1 filing, which includes the prospectus. It details the risks the company foresees, how they make money now and how Facebook's management expects to keep earning money in the future.
You can also watch the roadshow video and see the presentation used to woo institutional investors.
Will you be buying Facebook?
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