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May 18, 2012 at 11:15 AM
As Friday’s Facebook frenzy approached, the clamor for shares of the IPO was so great that it guaranteed one outcome and almost guaranteed another: that Facebook’s founders would be even richer than they thought and that “investors” would wind up with mediocre results.
On Wednesday, Facebook expanded by 25% the number of shares it was offering the public, adding enormously to the wealth of Facebook founders who got in on the ground floor, but diluting the value of shares bought by retail investors. While ordinary folk were buying, Mark Zuckerberg, together with the other founders of the social networking site, were selling, adding many billions to their already sizable net worth. Facebook closed its first day of trading on Friday, up only 23 cents, at $38.23.
It is worthwhile at market-history making events like the Facebook IPO to pause and consider how easy it is even for financial professionals to fall into the trap that the investment industry lays for those with money to spare and perhaps a bit more greed.
The hype, excitement and hoopla swirling around Facebook is part of the plague of short-termism that dominates Wall Street, CNBC financial broadcasts and the overall excessive focus on immediate gratification and the quick buck. Facebook and social media more generally are a societal phenomenon, so the public smells money. But every market transaction has both a buyer and a seller, and the long run-up of hype has blinded people to the fact that it is the sellers who stand to make the big money out of this, or most any IPO.
