A while back I wrote a piece about Facebook, focusing on the stupidity of the downside arguments. I have never seen a stock where so many are focused on their ideals about where technology is going rather than trading the stock. Had you just made the trade instead of listening to what Cuban said (which he later almost completely revoked), you would be fine. Now lets go over a few points so you don’t make yourself look like a fool again.
No one knows where the social monster will end up. Hell it could even get so big it will eat itself. In more simple terms, social could become an all encompassing aspect of our lives and it may become the norm for us to cut out social interaction through technology. This does not mean that you can not make money on the trade. Let’s look back at something comparable, so as to better relate it. We all remember the Netflix tale, the famous Cramer pump and dump. Where shorts were burning their houses for insurance money and longer were claiming Obama was going to offer Obamaflix all the way up to $300. I remembered my own inaction like it was yesterday. I wanted to buy in at $99. I wasn’t even looking for anything but to see $115 again (I’m a simple guy, I don’t ask for much). I was so fearful of the longevity of their business model I didn’t buy in. I didn’t buy in at $100. I didn’t buy in at $150. I didn’t… you get the point. Lucky for me I didn’t try to short it anywhere on the way up either. The long and the short of it is(elementary pun intended) that you can’t fight where the market wants to take these hot stocks.
Facebook has moved over 50 percent in the last 3 months. I am not saying go out any buy it tomorrow. Though I do believe instagram is taking twitters formula and owning them at it (though thats another post). The point is they aren’t going out of business yet, well not until they launch their own platform on the RIM phone (cause it sure won’t be on an iPhone or Android). I think the moment of elated buying has past, people don’t buy Facebook profiles for Jesus’s Birthday, they buy everything else. I think there are currently better plays than the Book, but what you should take to heart is the simple and key lesson everyone overlooked.
If you play Facebook through a real long or short thesis you are asking to be taken out back and shot (preferably with a Smith and Wesson). Ask around. Play it like a trader and you will be rewarded. Most importantly look through the fog to see the marker, the fog being the fools caught up in their ideologies and the marker being price action.
Photo by Steven Rosenbaum