This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

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.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
FB $117.58 0.00%
AAPL $93.74 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%
YHOO $36.60 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs