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Facebook Fed the 'Ignorant' Masses an IPO Lite

NEW YORK ( TheStreet) -- The Facebook IPO is an excellent reminder of the role that amnesia plays in the stock market.

It's said that markets are efficient, and I guess they are in a narrow sense, in that stocks tend to incorporate all of the publicly available information about them. But the same principle certainly doesn't apply to the way market participants interact with one another. So we have the spectacle of JPMorgan Chase repeating the mistakes of 2008 and losing $3 billion (and counting). For the rest of us, we have the Facebook IPO, in which an entire body of knowledge and memory of the IPO process was buried down the memory hole, totally forgotten.

How did a company best known for wasting people's time (when it's not violating their privacy) become the IPO stinker of our times? Because people forget that it's been proven time and again that the only proven winners in IPOs are the issuers, insiders and underwriters, with favored clients like hedge funds and institutional investors the only ones able to benefit consistently from IPOs that perform well out of the starting gate.


In this case, the issuer made out like a bandit. Facebook reaped $16 billion that will allow it to compete with the Goliaths of the industry. Facebook management, meanwhile, has borrowed from the techniques of shoddy used-car salesmen everywhere by failing to give full value for all that money.

As has been pointed out with increasing alarm by several commentators, most recently Matthew Yglesias at Slate, Facebook CEO Mark Zuckerberg structured the deal so that he isn't even giving up control of the company. So in a larger sense, divorced from the aftermarket performance and the other controversies swirling around the IPO, the Facebook IPO already stank to high heaven before the first share traded. It was a kind of IPO Lite, offering shareholders the trappings of ownership of the company without giving them the full privileges of ownership.

And who are those lucky investors who bought into the IPO Lite? The word that comes to mind is "ignorant," and I mean that in a nice way.


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