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Facebook IPO: the Pop and How to Play It

NEW YORK (TheStreet) -- Facebook shares will soon be available to the public, but if you want to invest on the long side, it may make sense to wait--maybe as long as six months after the inevitable first day pop.

"Facebook is a global public brand and as a result there are a lot of people that feel they understand Facebook--they understand what Facebook is all about. Whether they do or not is a whole separate issue," says Bob Ackerman, founder of venture capital firm Allegis Capital. "There's that level of visibility that serves to expand demand for the stock, at least initially, and if you look at that breath of demand based on this high profile public image versus supply it looks like it probably ought to pop"

When you're worth $17.5 billion, who cares if you leave a little money on the table?

If Ackerman is right, it may not be such a good thing for the shares for the next few months.

Of the seven initial public offerings of technology companies since 2011 to rise more than 50% within their first two days of trading, only one rose additionally through the next 180 days, tweeted Ted Tobiason, head of technology equity capital markets at Deutsche Bank.

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A massive run-up in a company's shares shortly after an offering is priced suggests the deal should have been priced higher. That would have allowed the company to make more money, as opposed to shareholders lucky enough to get an allocation before the shares become available on the open market.

Facebook could have chosen to avoid the pop by doing a Dutch auction-style offering, as Google (GOOG) did in 2004.

In that type of offering, rarely used in IPOs, shares go to the highest bidders rather than being allocated to investors by the investment banks underwriting the deal.

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That method worked well for Google, which rose less than one percent in its first day of trading, and a month later was up by a healthy but not unsustainable 20%.

It also enabled Google's users to invest in the company without being subjected to wild share price swings that had more to do with the oddities of the IPO pricing process than the business in which they were investing.

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