Facebook's Public Debut

by Gerri Willis

The nation's lead securities regulator Mary Schapiro had a message today for small investors stung by the Facebook IPO. In spite of the problems with the social network's public stock launch, you should be confident in the markets.

But it's too late. They've already lost confidence. The IPO that was supposed to take the market by storm and re-ignite small investor interest in stocks did just the opposite.

Small investors are complaining they were prevented from confirming trades or trade cancellations. Orders to sell or buy that normally take two seconds took hours.

People who bought are angry. Those that didn't are shrugging their shoulders and saying I told you so

One investor commented to the Wall Street Journal, "I was stuck for six hours trying to confirm whether I owned this dog or not."

What was going on behind the scenes -- according to reports -- is that Nasdaq's system took an extra two milliseconds to calculate the Facebook shares opening price.

In the meantime, the system was trying to process order cancellations, and that resulted in Nasdaq having to manually override the system override, which took 20 minutes. One simple glitch in the middle of a massive public stock offering gets magnified. There is no room for error.

That's the official explanation. But we talked to those in the marketplace -- and what's going on is a lot of finger pointing.

Nasdaq says they've fixed the problem that caused the delay, and that it won't happen again. As for the order confirmations that are still pending, all Nasdaq will say is that after clearing up the "unintended consequences" of their pricing system, they cleared their backlog of outstanding orders and cancellations at 1:50 p.m. Friday afternoon.

The implication: Any delays people have had since then must be at the broker-dealers' end.

Online brokers say the fault was with Nasdaq and market makers.

Scottrade for example says Nasdaq's issues caused their customers orders to be delayed, which in term caused some of those investors to try to change or modify their order. Putting in place a cascade of errors.

Scottrade told the Willis Report that the company had staffed up to deal with questions even before problems arose, across its 505 branch offices, and its national service center and even on Facebook and Twitter.

When it was clear big problems had occurred, the company kept its trading services team working throughout the weekend to manually process several thousand transactions

Some of the brokerages managed to turn the trouble to their advantage.

Scottrade opened 431% more new accounts Friday than a typical day, and the day's trading volumes were up 70.6% versus the monthly average.

Fidelity spoke to us as well saying, "Fidelity continues to deal with the aftermath of Friday's market issues in delayed processing of orders for Facebook (FB) Stock. As they did Friday, and yesterday, Fidelity's systems continue to operate normally. Unfortunately, our clients continue to feel the effects of these issues in some cases. We are working aggressively to address them."

E*TRADE declined to comment to us.

So far, at least one investor has already sued Nasdaq for negligence.

If you have been impacted, the right thing to do is contact your broker, and register a dispute.

You don't even need to have details of your trade on hand because the brokerage will have it in their computer system.

Any reimbursement will come from the brokerage, but ultimately, the nasdaq may be on the hook.

Frankly, I hate to see this kind of trouble for small investors. We need a system in place that treats everyone fairly not just deep pocketed investors looking to cash out of their investments.

The market needs small investors and small investors need an even playing field in the stock market in order to fulfill their own financial goals.

Fix the problem - do it fast. Ultimately it's in everybody's best interest for the markets to work efficiently, openly and fairly.

Facebook: No Friend to Investors?

by Gerri Willis

Well, after months of speculation and waiting, Facebook is a public company.

And for most small investors, the question will be where does it go from here?

Because now, Facebook joins the other 2,768 Nasdaq stocks that are graded on bottom-line performance. It's not about how many users the site has. It's about earnings and revenue growth.

On that score, you have to wonder just how well Facebook can perform. Top line growth -- revenue growth that is -- is already slowing. And one of the keys to the company's future success is how well it can use the personal information of its 900 million users -- and that puts it directly in conflict with our federal government. Investors have been attracted like a moth to a flame by the treasure trove of personal data that Facebook users share on the site, but the degree to which it can monetize that asset is far from certain.

Or as one commentator said today: “Facebook's sitting on a gold mine. Now it needs to find a way to mine it.”

What's more - the company's well-known CEO - the hoodied Mark Zuckerberg -- has never run a public company. He's a brilliant programmer and entrepreneur, but it's an open question how well he can manage a leviathan like Facebook whose size now rivals that of Pepsi, Amazon, Disney. Not long ago, he bought out Instagram for one billion dollars without even consulting his board of directors. Zuckerberg's lack of experience wouldn't be tolerated in any other industry.

One of the things about this deal that has bothered me is the degree to which insiders seem to be bailing. Nearly 60 percent of the stock offering comes from current shareholders who are cashing out -- bailing and moving on. Maybe they believe, like so many of us know that internet companies have a short half life.

Now despite all this, the enthusiasm for this stock is through the roof. Yesterday one of the employees of the building we work in here in New York came up to me and asked what I thought of the Facebook IPO. This person had never bought an individual stock. That's a sign there may be too much froth in the market for Facebook stock.

Ultimately, for me, it’s an open question whether Facebook is the next great stock investment. Being the next big thing -- well it's just not the same. The best advice I can muster - wait for six months, when insiders' options typically expire and selling pressure from insiders abates. If you still like it then, well, buy Facebook.

What You Need to Know Before Investing in Facebook

by Gerri Willis

The social networking site, Facebook, goes public this week in what could be the biggest ever IPO, and a lot of people are going to get rich.

But while insiders and friends of bankers will make a mint, individual investors, well, forget about it.

In fact, I believe the IPO market is stacked against regular investors.

IPOs are exhibit number one when we talk about an uneven playing field for individual investors in today's equities markets.

Take, for example, last year's most anticipated deal: the business social networking site LinkedIn.

It went public in mid-May at an offer price of $45 a share.

And, as in most IPO offerings, the insiders, the people who founded the company, the top execs as well as the investment bankers best clients were able flip their shares and lock in gains.

After the first day of trading, LinkedIn shares closed up at $94.25 a share.

But since then, they've fallen nearly 20%.

Check out this list of top brand name companies that went public last year.

It’s not just the names you know that encountered difficulty.

57% of the companies that went public last year are trading below their offer price.

In other words, even if you were able to snag the share price at the first day of trading close, it was a real crap shoot whether you made money.

Of the 17 internet IPOs that went public last year, only five are trading higher than their offer price.

When you look at the entire universe of IPOs that went public last year, the stocks were far more likely to trade below their offer price.

You would have been better off putting your money into an S&P 500 fund. Even some coal stocks did better!

There were some standouts though that bucked the trend like Invensense which is up 94%.

But these are the exceptions and let me explain why.

An IPO is an opportunity for original investors and managers to cash in on their hard work.

To get the payday, they hire investment bankers - Goldman, Morgan Stanley, and others - who spend their time trying to drum up investor interest in the new stock.

The insiders and the bankers and the friends of bankers make money because they create enough buzz there is an "aftermarket" -- that's what they call me and you.

Now, I know you're saying, “Hey Gerri, what about Google…it's trading way above its offer price.”

True enough, but that's one example. What of the other scores of companies that went public last year that are trading lower? We showed you a whole list of underwater IPOs in tonight's show.

Look, my point isn't that Facebook will be a dog. I don't think it will, but buying it tomorrow is a fool's game.

Do yourself a favor. If you're excited about Facebook and want to invest, wait until the chumps are out - a few days or weeks later - to see how it all shakes out.

Then decide whether the company is worth your money.

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