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Jerry Citarella: A stock, lots of eyes, then oops!

Posted: June 5, 2012 2:00 a.m.
Updated: June 5, 2012 2:00 a.m.

It was one of the most talked about events of the year: the stock that rocked the market — well at least until it actually started selling.

There aren’t many times the world is simultaneously focused on the same thing. It’s also rare when the conversation spans so many generations. Great grandmothers were talking to their great-grandchildren and the question in both directions was the same: “Are you going to buy some Facebook stock?”

Over the many years I’ve been in the financial services industry, I’ve seen some serious hype, but I don’t think anything has ever had as much hype surrounding it as the recent initial public offering (IPO) of Facebook stock.

What’s so different this time is the extent to which people are personally involved in the company. Typically, people may be a bit familiar with a company when its stock goes public. Sometimes, the company may offer a frequently used product or service. However, rarely (if ever) has a company gone public with hundreds of millions of people signed up for the service.

As of April this year, Facebook reported its 200 millionth user. As compared to the U.S. population, that’s equal to almost two-thirds. Many, if not most, of the users also engage regularly. Some use the service every day. Not only are people familiar with Facebook, but they’re also fully engaged.

On the surface, it would seem that such familiarity with a company would be a good thing, but in this case, it may have been a negative. People’s high level of involvement made it appealing to become more attached as a shareholder. Millions of investors wanted stock, and many didn’t know why. Some thought they knew, but from a professional standpoint, the reasons and expectations were mostly unrealistic. Many people thought they were going to get rich quick buying Facebook stock. Others just wanted to be a part of it, but had no real entrance or exit strategy regarding the purchase. Looking at this scenario with educated eyes, it was actually a bit scary.

The stock opened and a good thing may have happened. It basically lied flat and people didn’t suffer as much as they potentially could have. If the stock price had risen rapidly, as many people thought it would, it would have likely fallen just as fast.

This could have created an even greater frenzy leading to unprepared investors acquiring shares at unexpected prices, unsure of what to do next. This has been seen before. While some would do very well, many would have had devastating losses. Facebook stock had the potential to take people for a ride; possibly more so than any offering before it.

As I write this, it’s been a couple of weeks since the opening of the offering. So, what’s going on? Honestly, I’d have to answer this way — quoting the famous Homer Simpson — “D’OH!” It hasn’t been the great ride some expected. In fact, Facebook stock has come down since the opening day price.

What will happen in the future? We can only guess. Well, we can make believe we know and many on TV will, but in reality, there are so many unknowns with this company, it’s anyone’s guess.

Here’s the most important question: What are you going to do? Are you going to get a piece of this intriguing company? Have you already done so? If so, what’s your next move?

If you don’t have a strategy, get one. If you don’t know how to create a strategy, stay away or find someone who can help create one that’s appropriate for you. Most importantly, don’t “play” if you can’t afford to lose.

Nothing is guaranteed and some options are much more dangerous than others. Know the rules of the game you’re playing and be sure to have the best possible coach on your team.

I’ll see you on Facebook.

Jerry Citarella is the owner of Infinity Wealth Management 23734 Valencia Blvd., Suite 301, Valencia, (661) 255-9555, ext. 11.  He is also the author of The Truth Helps Series of financial planning books. Mr. Citarella’s column reflects his own views and not necessarily those of The Signal. Submit questions to:  Securities and investment advisory services offered through NEXT Financial Group Inc. Member FINRA/SIPC.  Infinity Wealth Management is not an affiliate of NEXT Financial Group Inc.



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