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Will Facebook Be One of the Worst Investments Ever?

NEW YORK ( TheStreet) -- Forget about the bumbling of the IPO a couple of weeks ago and that fact Facebook (FB - Get Report) stock is trading some 30% below its initial offering price.

There are some real signs that Facebook may be in real trouble and could turn out to be a disastrous investment. I wouldn't call this piling on, per se. I would say that Facebook's stumble out of the starting gate has given us all pause to consider the merits of the company in closer detail.

Overall the situation is starting to remind me of the old odd lot buy/sell ratio. This was a ratio used by Wall Street professionals to measure how much "dumb money" was coming into the market, and whether it was time to get out. The theory posited that odd lots, i.e. buys or sells of less than 100 shares, represented the activity of individual investors. Thus the ratio of odd-lot buys to sells would provide a measure of individual investor entry or exit from the market.
When enough cockamamie ideas are peddled as the next big thing, maybe it's time to run for the hills. Facebook could be a case in point.

What I'm starting to get from the Facebook deal is some kind of equivalent for tech companies entering the market that represent a tipping point of sorts investors should heed. That is, when enough cockamamie ideas are peddled to the public as the next big thing, maybe it's time to run for the hills. Here are some strategic considerations regarding Facebook that alarm me:

Straying: Remember when Apple (AAPL) went into the printer business, Quaker Oats bought Snapple, AT&T (T) bought NCR (NCR) or (and I'm giving away my age here) Exxon (XOM) was in the information technology business? To me there's plenty of evidence that straying from your core business rarely delivers shareholder value. So reports about Facebook entering the smartphone business -- unconfirmed by the company, I should add -- is not doing anything to inspire confidence in me. It is, to put it bluntly, a crappy business in which Apple takes 75% of industry profits while most others spend heavily for a toehold in the market and practically give their phones away.

Invasive ubiquity: Remember when there were two operating systems, Mac and DOS, with Mac holding about 1% of the market while DOS or the early versions of Windows held about 99%? Microsoft (MSFT) was the most reviled company on the planet. What began with a 1991 Federal Trade Commission inquiry ended with a June 2000 court order to break up the company, an order averted on appeal. Today, Microsoft has escaped the public ire and the prying eyes of the justice department, while the once cool, now ever-ubiquitous Apple takes its lumps at home and abroad.
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