Facebook offers up a painful lesson about IPO hype

Author: Dan Plettner

Covestor models: Pure Short Opportunistic, MLP Direct Ownership, Taxable Income, Well-Intentioned Activism, Long/Short Opportunistic, Core

Even for those of us who stayed away, it is impossible to ignore the lessons from the troubled Facebook (FB) IPO. “Mr Market” tends to repeat the same lessons on his pupils. Paying attention and not forgetting lessons is important. Whether observing a hot sector or a presumed hot IPO, it is critical to have discipline with any investing process.

Facebook’s offering reminded me of a painful lesson “Mr. Market” taught me back in the 1990s when I participated in the CompuServe IPO with my college savings. Everything involving the Internet was hot at the time and CompuServe had been the leader in Net access.  This was even before a company called America On-Line (AOL) emerged to dominate the phone modem era market.

The initial “pop” in CompuServe’s IPO was lackluster, and it later broke its offering price. As an inexperienced young investor, I though the IPO looked attractive. It wasn’t. I lacked humility or any historical perspective as to the lessons which “Mr. Market” had taught other pupils before me. I did all the wrong things. I lost more, and more, and more.

The best hedge fund talent in the Internet sector likely surfed the AOL wave while it was a growth business, and shorted it too when new technologies emerged. They likely shorted CompuServe all the way down. I lacked humility to see CompuServe was a dog with fleas.

Despite the fact that I’m an Investment Advisor with several models on an online site like Covestor, I’m no expert in social networking.

I think Facebook’s service is a fantastic way to keep friends and family alert to (big) news at our home. We don’t see enough of our family and friends in person. I very rarely pay any attention to e-mails I get from LinkedIn (LNKD), because I don’t strive to be any kind of social networking businessman.

Suffice it to say, investing in Facebook would have been worse than just investing outside of my focus on under-followed securities. While I’ve long suspected that Facebook faces challenges on the revenue front, I’m not the expert on it. I’d be a fool to compete with the hedge fund talent in knowing when it’s a buy or sell post IPO. For me, the only temptation to avoid was whether to try the flip game.

I’ll be sticking to my own discipline. There have been recent developments with several Closed End Funds including tenders announced by Alpine Global Premier Properties (AWP) ,New Ireland Fund (IRL), and several of the Morgan Stanley Funds including (RNE).

On May 16th, the Thai Fund’s Board (TTF) announced a new benchmark for its fund, a portfolio management change and other moves.

I focus on Closed-End Fund disciplines with many different styles of my own (Core, L/S Opportunistic, Taxable Income, Well Intentioned Activism Profile CEFs).

If I were a betting man, I’d likely be doubling down on my holdings in my MLP Direct Ownership model, not buying a large IPO like Facebook that shocked everybody by breaking its initial offering price. I’m not tweaking much of anything right now though.

My holding intentions within that sector tend to be extremely long term in nature, but I do believe the MLP sector is at an attractive entry point and I see the direct holdings as far superior to any ETF, Mutual Fund, or Closed End Fund Exposure in the MLP sector.

I do not have a crystal ball. I aim to remain fully objective, humble, and balanced in the opportunities I observe within my discipline in every style. I must be resolved in making decisions based on objective analysis rather than emotions.