Economics Questions

Re: What Should I Do With My Money?

Malachi — Wed, 05 Sep 2012 23:33:27 GMT

I thought it was a good price at 20

why? I take it you didnt reap any dividends

This company went from 0$ mobile ad revenue to the 2nd largest mobile ad revenue overnight. A BILLION customers with half of them using their product EVERYDAY is FUNDAMENTALS.

not when you define "customers" as USERS and they have a dismal ctr. You dont understand valuation fundamentals

no my argument is that facebook is looking after its best interest, which is whats best for the long run of the company.

then explain to me how that $7.5 billion is supposed to translate to profits. Just tell me what they have in mind to make money for the owners down the road.

whats a better business practice than maximizing revenue.

making actual profits.

If investors want to overvalue the stock that is THEIR problem not facebook's.

it suggests that one shouldnt continue to overvalue the stock by encouraging people to invest their inheritance in it at $20, and apparently we were right because its even lower now. I think $7-$10/share is ok, but only for someone who buys stocks as an investment, i.e. not the OP.

Price valuation will stabilize in the long run.

like right now? When its worth approximately what value investors say its worth?

They 'owe' a good investment to the long term investor, not the traders who were looking for a pop in the ipo price so they could sell. Screw them, and that is what facebook did.

a- are you suggesting that the ipo goatfuck was intentional on the part of feebee?

b- they dont "owe" a good investment to the people who were lining up to buy it as soon as it became publicly traded? Who says those people werent long term investors?

c- your statement would suggest that advising the OP to buy stock later, after the price dropped to better reflect the underlying fundamentals, was good advice. But you didnt seem to feel that way at the time.

so you have a new theory of valuation? id like to hear one that isnt based on subjective value.

its pretty easy, because its an "if-then" type of proposition. If you want to reap returns on your investment, then you value those investments that are going to produce returns. Since the future is uncertain, we can say "likely to produce returns." we (values investors) measure this in three primary ways. The first is dividends, because they represent return on investment and a successful business process (unlike an overhyped ipo). The second is deferred profits, because when a competently-run company reinvests profits in the production cycle, this is done with the aim of ultimately making greater profits (which will be paid out as dividends). This is why I keep asking you what productive thing feebee is supposed to do with the $7.5 billion. The third, and generally least significant, measure values investors use is the balance sheet. This is because ownership in a company entails ownership of its assets. If a company has a market cap of $700k and assets minus liabilities worth $900k, then it is probably underpriced, because you could theoretically buy the whole company on the open market and make $200k in profit.

of course all of this is subjective, it depends on the goals of the investor. Thats why, when someone says "buy x stock, its a good investment" values investors say "why is it a good investment? Who (what type of investor) is it a good investment for?" this is inherently subjective, because everyone has different goals and schedules. If you are over 70 years old, youre not likely to want an investment that would likely take 30 years to pay for itself. Someone in their 20's might think that was acceptable. So, how long would it take a facebook share to pay for itself?

I claimed it was obviously overvalued because the price has come down from 38 to 18. Please tell me how you can predict the future.

by looking at the fundamentals and realizing that many people who had bought the stock at prices above $20 would realize that they werent going to make much from the investment, so they would likely liquidate the shares and invest the money somewhere else. A drop from 38 to 18 in exclusion of the corporate fundamentals would not tell you whether the stock was undervalued, overvalued, or had been overvalued and was now undervalued. Of course if those people bought those shares for other reasons, this prediction wouldnt apply. Fortunately for values investors, novelty investors such as yourself are a minor fraction of most markets.

how was is it in the best interest of zuckerberg, but not the company? The previous owners of facebook still own well over 50% of the stock.

zuckerberg made a bunch of money and in the process destroyed much of feebee's brand equity, which reflects poorly on the company.

no, they did the only thing they could do which is maximize revenue by selling the stock for as much as they could.

thats not "the only thing they could do" if we believe your suggestion that their actions were deliberate. Furthermore your statement and mine are not mutually exclusive, it seems like youre saying that they sold the stock at an overvalued price, letting their most eager and enthusiastic investors pay way too much for the "product." not exactly something that would inspire confidence for a prospective investor.

it is going into the infrastructure of the company. They will do what every business does with capital, profit off it and generate more capital.

sure would love to hear what they plan to do that would make actual profits.

In the long run is revenues stay where they are then yes there is no real profit in it as the price will fall to 6-12 a share. I dont think that price will ever be realized because of the 'hype'. So i think its fair to buy from 15-20. We've already discussed this being speculation. I see it as an investment in a start up company with a billion customers. Is it a risk? yes, but i personally see limitless and quick growth potential. Its fine that you dont like it, but i do. I am entitled to my subjective valuation of the stock being 15-20$.

thats fine but as soon as you suggest that what is right for you may be right for another investor, you enter the realm of the intersubjective and you have utterly failed to make your case. All you have demonstrated is that fb is a good buy for someone who wants fb.

Lets just end the argument with i say buy now at $15-20 then lets look at Sep 4th, 2013 and see who is right. Since i will still own the stock then i wont forget. I think its fair to give a start up a year to start having a clear business path and i think the price will be above 25 once investors start seeing products and direction. Honestly, i think it will be above 30. I dont really want to argue anymore about predicting the future.

thats not going to settle the argument because I never claimed that feebee stock wont appreciate. I simply observed that you havent given the op a single good reason to follow in your footsteps.

Re: What Should I Do With My Money?

grant.w.underwood — Wed, 05 Sep 2012 03:27:07 GMT

"yah feebee made out like a bandit selling it on hype instead of fundamentals." - we obviously have a difference of opinions. I thought it was a good price at 20 when the stock went up to 23$ on hype i sold it. I didnt feel like it was a 23$ stock, i didnt buy it at 23$ so why would i hold onto it at 23$? Nothing had changed for it to be worth 23. This company went from 0$ mobile ad revenue to the 2nd largest mobile ad revenue overnight. A BILLION customers with half of them using their product EVERYDAY is FUNDAMENTALS.

"So your argument is that facebook stock was a good investment for Zuckerberg et al?" - no my argument is that facebook is looking after its best interest, which is whats best for the long run of the company. It wasnt best for zuckerberg or ipo investors it was best for facebook the company. Which is going to be best for the people that get in here in the next people weeks when it will be at its alltime low. Facebook starting doing a little PR work after market closing today so i think a price stabilization is near.

"they have control over the business practices that make the company a good investment or a bad investment. And if facebook paid their shareholders well, the stock would become more valuable and that would lead to increased demand. Of course when you make shit for profits and have to divide that by 18 gazillion shares, your p/e ratio is in the basement and that has an effect on demand. So youre still wrong." - haha ya ok. whats a better business practice than maximizing revenue. If investors want to overvalue the stock that is THEIR problem not facebook's. They arent lying to the investors. Facebook has said all along that they dont care about stocks, they care about maximizing facebook. Price valuation will stabilize in the long run. They 'owe' a good investment to the long term investor, not the traders who were looking for a pop in the ipo price so they could sell. Screw them, and that is what facebook did.

"quite the opposite, thats why we advised against BUYING IT AT AN OBVIOUSLY OVERVALUED PRICE HERP DERP DERP" - so you have a new theory of valuation? id like to hear one that isnt based on subjective value. I claimed it was obviously overvalued because the price has come down from 38 to 18. Please tell me how you can predict the future.

"they did what was in the best interests of the prior owners, not the "company" as you suggest. Still, this thread is about what is in the best interest of the OP, not about reimbursing some idiot who wanted to donate money to feebee" - how was is it in the best interest of zuckerberg, but not the company? The previous owners of facebook still own well over 50% of the stock.

"so you think they intended to shit on their most enthusiastic investors?" - no, they did the only thing they could do which is maximize revenue by selling the stock for as much as they could.

"this is a good thing from whose perspective/balance sheet?" - the investor who correctly purchases the stock at its correct valuation.

"Why is this money important to the investor? Surely youre not suggesting the $7.5 billion will be paid directly as dividends??!?!?!" - haha no. it is going into the infrastructure of the company. They will do what every business does with capital, profit off it and generate more capital.

"you said its worth $6-$12/share. Wheres the profit? Is feebee going to magically raise more profits by doing a Subsequent Public Offering?" - no. In the long run is revenues stay where they are then yes there is no real profit in it as the price will fall to 6-12 a share. I dont think that price will ever be realized because of the 'hype'. So i think its fair to buy from 15-20. We've already discussed this being speculation. I see it as an investment in a start up company with a billion customers. Is it a risk? yes, but i personally see limitless and quick growth potential. Its fine that you dont like it, but i do. I am entitled to my subjective valuation of the stock being 15-20$.

Lets just end the argument with i say buy now at $15-20 then lets look at Sep 4th, 2013 and see who is right. Since i will still own the stock then i wont forget. I think its fair to give a start up a year to start having a clear business path and i think the price will be above 25 once investors start seeing products and direction. Honestly, i think it will be above 30. I dont really want to argue anymore about predicting the future.

Re: What Should I Do With My Money?

David B — Wed, 05 Sep 2012 02:11:38 GMT

I'd be curious to here what the OP actually ends up doing.

I wanted to add something about strategy.

I'd highly recommend reading The Black Swan and Fooled by Randomness by Nassim Taleb.

He talks about being "Anti-fragile" which is the opposite of Fragile. What he suggests is to be extremely resilient against losses, by being extremely conservative with the majority of your investment. Say 90%. The second thing is to be highly speculative with the rest. Most of your investments will probably lose money, but the few that win, can be highly lucrative.

Re: What Should I Do With My Money?

David B — Wed, 05 Sep 2012 01:52:51 GMT

Al, you can't be recommending your own post...

Re: What Should I Do With My Money?

Malachi — Wed, 05 Sep 2012 01:12:42 GMT

Look at it the other way around. Look at it from Facebook's point of view. They have a business that everyone wanted. They had tons of investors that just want to give them cash. Are you going to sell your stocks for as cheap as possible or are you going to maximize revenues? Who in their right mind would sell their stock for $10 a share when you can sell it for $38?

yah feebee made out like a bandit selling it on hype instead of fundamentals. So your argument is that facebook stock was a good investment for Zuckerberg et al?

Are you seriously blaming facebook for public demand of the stock? They have ZERO control over how much people are willing to pay for their stocks.

they have control over the business practices that make the company a good investment or a bad investment. And if facebook paid their shareholders well, the stock would become more valuable and that would lead to increased demand. Of course when you make shit for profits and have to divide that by 18 gazillion shares, your p/e ratio is in the basement and that has an effect on demand. So youre still wrong.

Are you blaming facebook for taking 'advantage' of the people by not telling them they are crazy to be willing to pay $38 a share?

yah that exactly what we are doing, everyone in this thread TOTALLY FORGOT about the op and his questions, we just want to BLAME FEEBEE for being "the worst company imaginable" (see my above posts).

Are you really shocked when the stocks go down as much as it has when it was OBVIOUSLY over valued?

quite the opposite, thats why we advised against BUYING IT AT AN OBVIOUSLY OVERVALUED PRICE HERP DERP DERP

"called it" one might say

Facebook put like 10 billion $$$ in the bank because they maximized the IPO price. They did what was in the best interest of the company.

they did what was in the best interests of the prior owners, not the "company" as you suggest. Still, this thread is about what is in the best interest of the OP, not about reimbursing some idiot who wanted to donate money to feebee

They were incredibly intelligent in their IPO price, and it should stand as evidence that they are a properly ran company.

so you think they intended to shit on their most enthusiastic investors?

The profitted an extra 7.5 billion $$$ more than if they did a 'fair' valuation of $10 a share. (Almost every analysis i've seen that looks only at Facebook's financial statement suggests a $6-$12 stock valuation).

this is a good thing from whose perspective/balance sheet?

So yes "put your inheritance into THAT". Any company that can arbitrage 7.5 billion $$$ out of their ass is a good company. (AND NO i do not recommend putting everything into facebook, but a small percentage is reasonable.)

I think youre misusing the term "arbitrage" as the shares werent purchased elsewhere, they were created. I also question what is the significance of the funds they raised? Why is this money important to the investor? Surely youre not suggesting the $7.5 billion will be paid directly as dividends??!?!?!

I'm more than eager to rebuy right now, and i will probably do another 2 or 3 buy to hedge my bet against the stocks variance/volatility.

you said its worth $6-$12/share. Wheres the profit? Is feebee going to magically raise more profits by doing a Subsequent Public Offering?

Re: What Should I Do With My Money?

grant.w.underwood — Tue, 04 Sep 2012 20:41:30 GMT

just saw this. i sold my stock that next monday and i made a few hundred with both my buys averaged out. I sold it because that monday had a 5% gain out of no where, but i still love the stock and im about to rebuy.

To refute that article, and everyone that bashes Facebook as an investment.

Look at it the other way around. Look at it from Facebook's point of view. They have a business that everyone wanted. They had tons of investors that just want to give them cash. Are you going to sell your stocks for as cheap as possible or are you going to maximize revenues? Who in their right mind would sell their stock for $10 a share when you can sell it for $38?

Are you seriously blaming facebook for public demand of the stock? They have ZERO control over how much people are willing to pay for their stocks.

Are you blaming facebook for taking 'advantage' of the people by not telling them they are crazy to be willing to pay $38 a share?

Are you really shocked when the stocks go down as much as it has when it was OBVIOUSLY over valued?

Facebook put like 10 billion $$$ in the bank because they maximized the IPO price. They did what was in the best interest of the company. They were incredibly intelligent in their IPO price, and it should stand as evidence that they are a properly ran company. The profitted an extra 7.5 billion $$$ more than if they did a 'fair' valuation of $10 a share. (Almost every analysis i've seen that looks only at Facebook's financial statement suggests a $6-$12 stock valuation).

So yes "put your inheritance into THAT". Any company that can arbitrage 7.5 billion $$$ out of their ass is a good company. (AND NO i do not recommend putting everything into facebook, but a small percentage is reasonable.)

I'm more than eager to rebuy right now, and i will probably do another 2 or 3 buy to hedge my bet against the stocks variance/volatility.

Re: What Should I Do With My Money?

Clayton — Mon, 20 Aug 2012 06:28:56 GMT

Facebook falls to half of public offering price

Yeah, put your inheritance into that. Derp.

Re: What Should I Do With My Money?

Prime — Mon, 06 Aug 2012 04:15:10 GMT

Just to clarify, I'm not referring to myself when talking about people owning a bunch of gold. I have too much in student loan debt to worry about hoarding gold bullion. And I have no idea what the IRS would use as a cost basis.

Re: What Should I Do With My Money?

DanielMuff — Mon, 06 Aug 2012 04:06:47 GMT

Sure; however, if you get audited by the IRS, what will they use as the cost basis? You know they're going to come up a number even if you don't have paperwork.

Re: What Should I Do With My Money?

Prime — Mon, 06 Aug 2012 03:55:43 GMT

So long as it's not being manipulated, it is at the correct market price. I've determined that the demand for gold will only increase with time as central banks continue to destroy their fiat currency, and there is without a doubt, in my opinion, more awareness about gold than there was 10 years ago. I think this trend will only continue. People will learn the hard way when inflation contiuously eats at their standard of living.

As for your question about the elites relenquishing their power, let me give you a different take on that. If you think outside the borders of the U.S., would a return to a gold standard, for any country not named the United States, be an increase in power or a decrease? In other words, it is now known that China is hording physical gold. What if tomorrow they announced they were going to back the Yuan with gold? Would you expect the Chinese elites to then have an increase in power or a decrease? Think on a global scale.

As for capital gains taxes, I'm sorry, but I don't know anyone who is paying capital gains on their gold buillion. It's hard to pay a capital gains when there is no paperwork stating at what price you bought the gold. That's kind of the point.

Re: What Should I Do With My Money?

grant.w.underwood — Mon, 06 Aug 2012 03:52:35 GMT

clayton - that post you responded to was for prime. my last post was to yours. sorry.

Re: What Should I Do With My Money?

Clayton — Mon, 06 Aug 2012 03:50:40 GMT

ok. if you are just going ignore the 'what should i do with my money. is there a way that i can have it make money for me', 'invest it in something that can bring returns' then this is a pointless argument. If you want to discuss aspects of investments/something is better or worse im down to discuss.

I didn't ignore it - I said he should not invest because he's ignorant, confused and inexperienced about investing. If he thinks that's unsound advice, by all means, I encourage him to save his money while he goes and researches the reasons why I'm wrong!

because one day we will be back on the gold standard? What leads you to believe that the elites in power are going to give the power back to the people?

I don't know what the future of money is but I know what it is not... a continuation of the status quo indefinitely. We are a little over 40 years into a pure-paper fiat standard and every prediction of the fiat inflationists has turned out to be wrong. They said the value of gold would tank when severed from the dollar. It didn't. They said that flexible exchange rates would bring the benefits of the market to foreign exchange and stabilize global currencies. It didn't. They said that gold bugs would eventually lose everything once they realized that gold would never again rise above $450. They were wrong.

Will we start electing better people on a whim? Will elected officials stop being like most people and understand gold and want to own gold? how do you propose that will happen?

The value of gold is utterly independent of political vagaries. That's the whole point. The dollar moves up or down depending on which side of the bed Ben Bernanke wakes up on. But the more that politicians talk about spending, the more the central bank threatens to inflate, the more saber-rattling they engage in, the higher the price of gold goes. Of course, this isn't the reason to hold gold but it's a very rewarding benefit for those who choose to sail against the wind.

If "the price of gold" does move down, this will almost certainly mean that the dollars you are selling your gold for are purchasing more than they did before. While you can lose money if you buy gold during a bubbly peak, it's fairly easy to avoid making this mistake.

Value of gold in our market is determined by dollars. You are going to pay for the inflation when you sell it with your capital gains tax.

That's one of the main reasons to store it overseas and expatriate. Derp.

A tax that every democrat is trying to raise. So you want him to invest in a product that has a value based off a set capital gains tax that will most likely be raised in the coming years and thus lower the demand for gold? because there is a chance in the unforeseen future that one day we will be on a gold standard that no one in power, but Ron Paul who is retiring wants?

*shrug - profits from the sale of Facebook's shares will also be taxed at the same rate. Unlike Facebook, the price of gold is not in the slightest danger of any precipitous drops.

And, again, the gold standard has nothing to do with anything. The purpose of holding gold is that it is money, money that can't be fiddled.

Clayton -

Re: What Should I Do With My Money?

grant.w.underwood — Mon, 06 Aug 2012 03:49:47 GMT

clayton - i think its fair to say that he is worried about cash, and so gold is a fair option. I also dont think its THAT stupid to have some gold savings.

disagree on getting it out of the US. If the US goes down who do you think is going to not be hit with the crash? The only way i really see US actually crashing is if the dollar crashes which is possible, but who would be better off? What nation doesnt tie its financial sector off the US? id like to know that.

Re: What Should I Do With My Money?

Clayton — Mon, 06 Aug 2012 03:38:45 GMT

Also, I want to make a note on "diversification" - this is a much misused word nowadays, too. If diversification means you never hand all your money over to one person, sure, I agree. However, putting all your cash into savings is not a failure to diversify. Storing it all at one bank (or even all in one country if you have enough money for that to matter), is.

Buying "the market" is not diversifaction, it's stupidity. The vast majority of businesses go bankrupt within 3 years of startup. If you're "buying the market", you're buying all the riff-raff along with the good companies. The Dow Jones or S&P indices are just that ... indices. They index the market, they try to give some kind of "representative sample" to indicate how "the market overall" is doing... whether good or bad.

If you're going to do stock speculation, then it only makes sense to actually speculate on individual companies, that is, stock-picking. Any other strategy (outsourcing it to "fund managers" or "buying the indexes") is irrational lunacy. If you had enough money to buy whole companies, would you hire a "fund manager" to do such buying in "blocks" so as to save you time and energy?? Of course you wouldn't. Each company you bought would be on the basis of the expectation that your profits while owning it plus the sale price when you sell it would exceed the purchase price by enough of a margin to yield the desired net profit. How is buying/selling shares of ownership any different?? The Dow Jones and the S&P are utterly irrelevant to this except as a bellwether of the overall health of the market.

But the OP should not be engaging in stock speculation for the same reason he shouldn't be doing brain surgery - he's not practiced, knowledgeable or experienced in either one. He should save his money as safely as possible and learn everything he can about brass-tacks, no-BS money management.

Clayton -

Re: What Should I Do With My Money?

grant.w.underwood — Mon, 06 Aug 2012 03:32:55 GMT

ok. if you are just going ignore the 'what should i do with my money. is there a way that i can have it make money for me', 'invest it in something that can bring returns' then this is a pointless argument. If you want to discuss aspects of investments/something is better or worse im down to discuss.

you think its a good idea to invest in a product that most people dont understand and dont own? Its not undervalued then its the CORRECT market price. Thats the whole point to a market. The only way for the value to change is for demand to change. So if most people dont own and dont understand why would they just start buying it? because one day we will be back on the gold standard? What leads you to believe that the elites in power are going to give the power back to the people? Will we start electing better people on a whim? Will elected officials stop being like most people and understand gold and want to own gold? how do you propose that will happen?

Value of gold in our market is determined by dollars. You are going to pay for the inflation when you sell it with your capital gains tax. A tax that every democrat is trying to raise. So you want him to invest in a product that has a value based off a set capital gains tax that will most likely be raised in the coming years and thus lower the demand for gold? because there is a chance in the unforeseen future that one day we will be on a gold standard that no one in power, but Ron Paul who is retiring wants?