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.

A Big Problem Our Country's Facing

by Gerri Willis

On today's show, I'm talking a lot about how it seems we've all lost confidence. One piece of evidence: Individual investors have pulled out of the stock market in record numbers. Stung by the crash after Lehman's bust, many of us just don't trust the stock market to help us with our most important goals - saving for retirement and our kids' education.

Investors pulled nearly $75 billion from stock mutual funds in the past four months. That tops the $72.8 billion pulled five months after the collapse of Lehman Brothers back in 2008. This lack of confidence is happening in corporate board rooms as well. CEOs are hoarding cash -- unsure where to invest.

U.S. companies sat on a whopping $1.2 trillion in cash and short-term liquid investments at the end of 2010, according to Moody's. That put debt-to-cash ratios at a five-year low. At one point this summer, Apple had more cash on its books than the U.S. Treasury Department. And, it's all because of a lack of confidence.

When you don't know what's going to happen to your taxes, or to the rules governing your business -- it's tough to commit to anything at all.

In the political arena, we see the same. Faced with gridlock and a nothing-can-get-done attitude, some opt to play to their constituencies only and to ignore the broader problems plaguing our country. Others just play both ends against the middle.

Senator Dick Durbin (D-Ill.) slammed Bank of America for raising debit card fees. But, it was his amendment to Dodd-Frank that made it happen. The most common analysis of our problems as a country often comes down to money as a nation. We have a $14 trillion deficit. Social security, we are told, is a Ponzi scheme. Medicare and Medicaid running on fumes.

Also, American families struggle. They earned one tenths of a percent less in August. It's the first decline in nearly two years. Middle income families now earn what they did back in 1997.

Look, we could overcome these problems and fight back, if we had strong leadership - strong leadership in both the public and the private sector.

A galvanizing force would propel us up and out of this funk. Remember, our country still claims the biggest economy in the world. And, the biggest economy in the world runs on just 5% of the globe's population. We can turn around.


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