NEW YORK (
) -- After spending a year scanning investment discussion boards, and participating in those discussions, I've come to one firm conclusion.
Small investors are bipolar, and it's costing them money.
The Facebook IPO is a perfect example of this. In the run-up to the launch, investors I read and wrote to all expected big things. They insisted the company was undervalued at $100 billion, that it was the next
, the next
. They predicted doom for all those who stood in its way.
Once the IPO's failure was apparent, the mood went 180 degrees the other way. When I wrote recently that Apple could now get the company for $80 billion or less (the current market valuation is $58 billion) I was called crazy, because Facebook wasn't worth $80 billion, wasn't worth $58 billion. It was worthless, it was doomed, it was going under, it could do no right.
Big investors don't operate like that. Big investors may change their views, but they adjust. They don't go from "buy, buy, buy" to "sell, sell, sell" in panicked herds. They use others' panic to make money.
They use your panic.
Westerners are fond of saying that the Chinese ideogram for "crisis" is
actually a combination
of "crisis" and "opportunity." Whether that's true (and my son, who is studying Chinese, insists it's not), smart investors know to seek opportunities in crises.
I don't know what's going to happen in Europe, but I do know that Europe will still be around a decade from now and that there will be investment opportunities there. I don't know what is going to happen regarding the U.S. deficit but I feel safe in assuming the same with our country, too.
That doesn't mean you don't adjust to circumstance. But it does mean that you don't panic, you don't let yourself be whipsawed by emotion into thinking a company that was all-good yesterday is now all-bad.
Take Facebook, again. While it was originally an application written by a small team using open source tools, the company built around it has scaled into something much more. There's a lot of cloud technology there, there's an ad network, there are literally hundreds of millions of user accounts for it all around the world. And there's a young, aggressive executive team.