If you have been watching TV or reading the blogs the big news has been around the facebook IPO scandal. Facebook recently went public and many people are angry over the fact that the stock has dropped in the last week. The stock started out at 38 dollars, and dropped down the 31 dollars in the first 3 days. With many people in panic, billions has been lost and many people are looking for answers as to why this happened. I knew from the beginning that shorting that stock was the only way of investing into facebooks IPO. But the question is why did i know that, while hedge fund managers who were overseeing 100 million dollars didn’t? All of those questions are going to be answered plus more so stick around.
Insiders In, Outsiders Out
If you have ever been to a nightclub, you would know that security stands outside waiting to let people in the door. The only people who get in are those who look good, and have swag. Facebook’s IPO was no different because the only people who could invest when it was in the 20$ range were the insiders. To be able to invest into facebook before the public got a chance at it, many banks would only let you invest unless you had 500k. The bar was set so high that only those who have money were able to have a quick payday with facebook. When google became public and had an IPO of 85$, it went up to 100$ within the first day. Everybody was able to get in on google since it was a what we call in the investing world a dutch auction. This means that a public offering auction structure in which the price of the offering is set after taking in all bids and determining the highest price at which the total offering can be sold. In this type of auction, investors place a bid for the amount they are willing to buy in terms of quantity and price.
Facebook is Shady
While i have a facebook myself, i don’t trust the company to do the right thing. That’s one of the reasons why i wont upload any of my photos to facebook, and give them any of my personal information. I knew from facebook’s history they would try some shady stuff when it came to the IPO. Mark Zuckerberg sold most of his shares right as the stock opened at around 37 dollars. Right after the public rushed in and took the loss while facebook and the insiders laughed all the way to the bank. Another red flag were the people signing off on the IPO were Goldman Sachs, and Morgan Stanley. To think of a gang of a worse people who have been involved in more fraud then these 2 companies doesn’t cross my mind.
Lessons To Be Taken Away
You always have to be weary when an IPO comes out if your investing into stocks. Personally i don’t invest into stocks, but for those that do need to be cautious of anything like this. A safer way to invest has always been passive income, so look towards that rather then betting on a capital gains returns.
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