Facebook IPO a ho-hummer despite great expectations

Local financial advisers were anything but bullish on Facebook stock Friday, the first day the social networking website traded publicly.

If the stock's debut was any indication, it was just as well.

Facebook's share price, set Thursday at $38, opened at $42.05 on the NASDAQ exchange, climbed to $45 in early trading and closed at $38.23.

"I had one client that expressed interest," Bill Middleton, president of Sound Portfolio Advisors in Mystic, said early in the day. "I said I thought it wasn't a great idea. … Buying an asset at a time and price of the seller's choosing does not seem to be a great idea for a buyer.

"Most IPOs, frankly, are losers."

More than 566 million Facebook shares traded Friday, the largest volume of any IPO in history.

"We're not recommending it," Robert Henderson, president of Lansdowne Wealth Management in Mystic, said Friday afternoon.

Henderson said people might have been interested in buying Facebook shares because of the buzz surrounding the IPO, which generated more than $16 billion, one of the biggest market capitalizations in history.

"There's no harm in that, but in terms of it being a real solid investment, I wouldn't look to allocate too much to it," Henderson said.

Facebook, founded only eight years ago by Mark Zuckerberg, then a student at Harvard, "is still an unproven company," he said.

For most individual investors, the company's shares were out of reach before Friday. Only the investment banks involved in organizing the IPO had access to them.

A lot of people asked about the IPO when it was announced a couple of months ago, Jim Bates, a financial adviser with Edward Jones in Mystic, said.

"We've had a little interest (since then), but it hasn't been as overwhelming as you might think (given all the publicity)," he said. "Our clients tend to be long-term investors. They don't chase something new."

Bates said Edwards Jones put in some orders for Facebook shares late Thursday and Friday morning, before the stock started trading.

"Some people inquired, then decided not to," he said. "I think a lot of investors were torn. If the share price takes off, they'll say 'I wish I had some.' But it might not."

He said his firm typically recommends that clients put a limit on the price they'll pay for a stock, particularly during the first few days of public trading. Otherwise, if the stock price soars, they could find themselves in a bind.

"At the end of the day, you still want to buy low and sell high," Bates said.

The Facebook stock's lackluster showing Friday reinforced Bates' view.

"It just goes to show, the market will do what it does, regardless of the hype," he said after the markets closed. "We know from history that these things are very hard to predict. Making sure a stock is the right fit for your portfolio is the biggest consideration."

Earlier in the day, Middleton, of Sound Portfolio Advisors, was emphatic.

"What's going on now has nothing to do with rationality or business sense," he said of the Facebook buzz. "It's absolutely emotional."

A company's social impact is not necessarily an indication of whether it might be a good investment, Middleton said.

"Think about the airline industry. If you were at Kitty Hawk and someone said we can build this bigger and move hundreds of people at great speeds - that would have sounded like a great investment. But the airline industry, from its inception to now, is a net loser."

He also noted that Facebook's motivation in going public had little to do with raising capital to fund growth, as companies often do. Instead, he said, the IPO was all about generating liquidity for the early investors in the company, many of whom were compensated with Facebook shares.

What kind of investor would be wise to take a big stake in the Facebook IPO?

"A dumb one?" Middleton wondered aloud. "People who are in this are speculators, not investors."

b.hallenbeck@theday.com

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