This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Facebook IPO: A Rookie Investor Trap

NEW YORK ( TheStreet -- Facebook is reportedly looking to raise $10 billion in an IPO that could arrive as soon as April 2012, but retail investors should be wary of wading in the first chance they get.

There's an emotional draw that can sometimes make people more comfortable buying companies that they are familiar with, but folks sucked into buying Facebook during what's sure to be dramatic first day of trading may want to take a look at the downward trajectory that's followed the bombastic debuts of other buzzy Internet names like LinkedIn (LNKD - Get Report) and Groupon (GRPN - Get Report).

Chris Nagy, a managing director overseeing order execution at TD Ameritrade (AMTD), says retail customers often end up paying huge premiums since they have to wait until the stock hits the open market.

"They know the name and get caught up in the first day frenzy," Nagy says. "The problem is that the more high profile names are more attractive to long term investors, people that trade less than 10x a year."

"If you look at the pure statistics, if that investor would have waited 30 days they would have been better off," said Nagy. "Our average buy order on Groupon was traded at $28 on that day and now it's at $15."

Nagy also pointed out that FINRA, the Finanical Industry Regulatory Authority, has instituted a rule that prevents market orders on IPOs that just went into effect in order to protect investors from that first day run-up. So, TD Ameritrade will now ask customers to place a limit order for first-day IPO trades.

The 800 million users of Facebook have turned the Web site into an Internet phenomenon but does that mean the company is worth $100 billion?

Francis Gaskins, President of the IPO Desktop, notes for comparison that Google's IPO valuation was $23 billion and the company is now worth $190 billion. Private market exchange operator SharesPost currently values Facebook at $73 billion.

But insiders will be inclined to sell as soon as they can so it will be up to buyers in the after-market to drive up the price.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
ANGI $10.72 1.04%
AWAY $35.49 1.60%
GOOG $748.15 -0.02%
GRPN $2.89 0.70%
LNKD $245.66 -0.51%


Chart of I:DJI
DOW 17,813.39 +1.20 0.01%
S&P 500 2,088.87 -0.27 -0.01%
NASDAQ 5,116.1430 +13.3350 0.26%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs