While watching Sunrise
this morning, Kochie was talking about the Facebook share price and how
Facebook had announced a 60% increase in revenue which resulted in the share
price increasing by 19%. The funny thing was Samantha Armytage picked him
up on it and said “and you told us not to buy Facebook shares” to which his
reply was “that was after they had first listed and they went down, but they've
come back up now.”
When we think back to
around the time when Facebook were first listing, there was quite a lot of
excitement and many people were keen to secure their piece of Facebook at the
issue price of $38. In doing a bit of research for this blog, I
found an article from earlier this year which was titled “Facebook,
One Year Later: What Really Happened in the Biggest IPO Flop Ever”. This article tells of a
68 year old widowed American woman ‘investing’ half of her life savings into
Facebook; some $210,000. The article discussed how she had witnessed LinkedIn
rise by 109% on its opening day, a year prior. This is not investing - this
is gambling. After some initial excitement early on, Facebook’s stock
quickly started falling after the company was listed and got as low as under
$18, which was a decline of over 50% from their issue price. At that time,
there was a lot of negative comments made regarding Facebook which included
that they can’t actually make a profit, that most of their users are mobile and
tablet users and as such that they are unable to effectively advertise to them,
and that the issue share price of $38 was way too high as it’s not worth that
much (although the Facebook Initial Public Offering was oversubscribed so if
you were to value an asset based on what others would pay, then at $38 it was
too cheap). Based on the comments on Sunrise this morning, it seems
‘Kochie’ was one of those media commentators that doubted Facebook as a worthy
investment option at that time.
The article about the
widowed woman was written when the Facebook stock price was $15 below her
purchase price. Essentially the article was all about Facebook’s
launch being the biggest flop.
Facebooks stock price
today is now up 29% from its original issue price, which over the 18 months
gives an annualised return of 18.50% - which could hardly be considered a
‘flop’. However, if the widowed woman had simply just purchased an
index fund at the same time in the S&P 500 (America’s top 500 companies),
her investment would now be up some 36% or an annualised return of almost 23%
with much less risk.
This whole saga is a
great example of why trying to pick stocks is fruitless. There is a lot of
academic evidence to show that the whole stock picking business does nothing
but serve the stock broker as stock brokers make a lot more money executing
stock trades for clients than the returns that their clients receive. At
Precision Wealth Management, our investment philosophy is not going to make you
an overnight millionaire but it will achieve market returns with the potential
for a small premium over the long term, which is better than what most
investors actually achieve without the risk of the investment blowing up and
losing everything. If you would like to know more, visit my website www.precisionwm.com.au and contact me.
Also, one other notable piece
of advice from Kochie’s investment wisdom, came back in March 2009 when I was
watching sunrise. It was the day after the market had bottomed and had risen
sharply although at the time we didn't know that was going to be the bottom as it
could have fallen again. Kochie confidently announced that it was a
dead cat bounce and not to buy in as there was still a lot of negative things
happening in the economy. Well as it turns out, it was the bottom
and the market is up over 50% since then, so Kochie, perhaps you should just stick
to hosting Sunrise and give up the investment tips. I’m not saying I
knew that was the bottom or not, but at least I know that I don’t know.
Disclaimer: I don’t
watch Sunrise that much…I really don’t.
