After 36 months, Facebook's business has grown, but it would be fairly valued -- without having generated any upside.
2. Myth: Facebook will be something different than it is today.
There is this idea that Facebook is going to be something other than what it is, that the personal information it has on its scads of users somehow makes it more valuable than just the sum of its parts.
I want to be clear: I totally disregard this notion.
Facebook is what it is. It's a social-networking site. It's nothing more than that. Facebook is a business and it must be judged by its business results.
If it had some magical profitability formula up its sleeve, it would have unleashed it long ago and generated the cash it needs that way rather than raising it from investors. Certainly, Facebook is enviably profitable; it can grow in some ways; and it will change over time. I'm not suggesting any of those things is impossible.
To the contrary: They are eventually inevitable. But Facebook will always be the company whose mainline business is operating a social-networking site. That's what you own if you buy shares, and investors can't forget that.
3. "The market is initially a voting booth, but over the long term, it is always a scale."
That's an old Warren Buffett line, and I think it's his most important, especially when one considers how long he's been saying it and how long he's been right.
In the short term, the market will cheer a company just for coming to the market. Traders want to see the company take off and its share price rally because that portends a market ready to buy. That's always good for people who make their living by trading or appearing on TV.
Wall Street gets in this gleeful mood -- former
Chairman Alan Greenspan famously called it "irrational exuberance" -- and begins to do the worst thing it can do: It starts to buy its own B.S. And when they start getting sold on their own deal, an IPO takes on an energy that is completely disconnected from reality.