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Facebook and Nasdaq: Two Faces of Lost Credibility

NEW YORK ( TheStreet) -- Anytime I come across something that I think is too good to be true, I get nervous. The skeptic in me always seeks to find fault in whatever it is that happens to be the fascination of the day. On Wall Street, that term is called "due diligence."

Although it is often talked about, not everyone appreciates enough the value of sound fundamental research that often leads to the somewhat solitary state of "not believing the hype." This was the case last week with Facebook (FB - Get Report) -- whose hype-filled IPO was full of drama and intrigue leading into the closing bell as it was clear to the entire market that it required a concerted effort from Nasdaq and the company's underwriters to close at $38 in order "to save some face."

It is hard to quantify the level of embarrassment I felt for Facebook as well as the entire market to see what took place in the last 10 minutes of trading as underwriters struggled to keep the stock from ending its first day of trading with a loss. Though the stock managed to close on Friday at $38.23 and keeping it slightly above its IPO price, the methods by which it occurred served as a black eye for a market that continues to deal with notions of manipulative practices.

This became even more apparent on Monday, as the stock closed down 11% to $34.03 on the day that the broader market recovered, which suggests that absent some "influences," Facebook likely would not have closed above $38 on its first day. But this is not because investors were not warned. Instead, investors -- particularly retail investors chose to be greedy when evidence suggested that the right play would have been to be fearful. The question is, what should be the next move?

While greedy investors deserve what they got, they received little help from Wall Street and in particular those that made this IPO the bigger than life event that it was. Investors, particularly those that prefer to spend valuable time on Facebook instead of conducting due diligence on the company, would have seen that it was not a particularly sound investment -- at least not to the extent of how it was sold.
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