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Quick turn-around strategy for buying Facebook stock?
May 8, 2012 9:45 AM   Subscribe

How feasible is a quick turn-around strategy for buying Facebook stock?

A friend of mine plans to buy about 3K in Facebook stock on the first day it is offered, and then expects to sell in two or more days when he expects the price will have risen, for a tidy profit. What are the odds that the stock will rise, and how much of a rise can be expected?
In addition, can I buy Facebook using just e-trade? I've read that about 15% of the stock will be available to the general public. Forgive me for these basic questions---TIAA-CREF takes care of finance for us---but would I just log on to e-trade when trading opens on May 18th? (6 a.m. PST?)
posted by ragtimepiano to Work & Money (19 answers total) 5 users marked this as a favorite
Individuals with E-Trade accounts can place a "conditional" order for Facebook shares (as long as they have enough cash in their account to cover the purchase and pass a suitability test). But placing a conditional offer "will not guarantee an allocation of shares," the brokerage says on its website.

E-Trade won't comment on the Facebook deal, but like most firms, it probably will bestow shares on its biggest and best customers.

Its site says IPO shares "generally will be allocated to interested customers after a subjective review" of the client's asset level, trading history, account tenure, margin debit balance, available cash/margin buying power and secondary market activity/flipping in their E-Trade Securities account.

posted by rtha at 9:49 AM on May 8, 2012

Shares are generally sold in 100 share lots. A quick google search puts the stock price at $45 a share (this isn't set in stone). That's more than the 3k your friend is looking at, so he's be getting an "odd lot." I doubt he could even find someone to sell him that (especially without an additional fee).

If I had $4,500 I wouldn't put it in Facebook stock, but this comment might make me look silly in 10 years. About the only way I would ever consider this is if this was an insignificant portion of my investing pool.
posted by cjorgensen at 10:02 AM on May 8, 2012

E-Trade's minimum condition offer request for FB is 50 shares, for what it's worth. The estimates are $28-35 but that'll be set on the 17th.
posted by kcm at 10:05 AM on May 8, 2012

I received an email from ETrade that said:

Dear Tilde,
Account Number Ending In: 4242

A new offering of securities is now available for Facebook, Inc. Visit the IPO Center to learn more.

Anyone wishing to participate in an IPO must have an account that is funded at least 5 business days prior to IPO pricing, among other requirements. Click here for details on account funding procedures and visit the IPO Center for additional requirements.

I clicked through the process to read it, lots of "we'll review you, we'll try, what do you think you want to put down, oh and if you sell it within 30 days we'll be kind of upset at you and not let you do this again (qualify for this special program)" and other blah blah blah.

I think this is the first time I got an email from them like this, though I've, in the past, hung around on IPO days/post IPO days whenever the real general public could buy and bought then, held it for the levels I wanted, then proceeded to sell when I was ready.
posted by tilde at 10:07 AM on May 8, 2012

E-Trade's minimum condition offer request for FB is 50 shares, for what it's worth. The estimates are $28-35 but that'll be set on the 17th.

Yes, that's pretty much what I recall skimming. I wonder if people who put in a conditional offer will know soon enough ahead of time to be able to jump on the offering if their condition is turned down (ie there's no hold on their money).
posted by tilde at 10:09 AM on May 8, 2012

I did some of this back in the original dot com boom of the late 90s and I'll just offer this one bit of advice.

Don't get greedy.

Take your $500 or $5000 profit (or whatever) after 24 hours and run like hell. I didn't on many occasions, and the list of tech IPOs I lost my ass on is long and glorious. I'd list a few here, but I doubt anybody would even remember the companies. I'm not sure how many I remember at this point.
posted by COD at 10:09 AM on May 8, 2012 [3 favorites]

What are the odds that the stock will rise, and how much of a rise can be expected?

If you do get a chance to buy it at the offering price, there's a decent chance that it will end up opening higher than that on the market, which can make you money. Once the actual price is set by the market though (which you would have to buy at if you can't get in at the offering price) then it's just like any other stock and it could go up or down. There's really no way of knowing. Groupon for example dropped around 8% in the first week. If you hold it for longer, like for a year, it will probably go up like the rest of the market but you have no way of knowing if it will outperform versus other investments. For example, for the last year IPOs in aggregate have lost about 20% from their initial opening price in their first year whereas the stock market as a whole has been slightly up during that period. Overall like most trading by people that don't have secret insider information, it's mostly just a gamble.
posted by burnmp3s at 10:28 AM on May 8, 2012

You are unlikely to get filled on this, if you are asking these types of questions. The way the IPO business works is…sort of corrupt, to varying degrees. It's definitely not a good place for the individual investor. Basically what happens is this: The reason I explain all this nonsense is because it is important to understand how the IPO shares actually get allocated. There's a whole bunch of people who do business with each other every day, in large dollar terms, that are making money off each other and taking care of their own balance of favors and so on. You, the retail investor, are far, far down the list of people here. Actually, you're not even on the list of people. Basically, if you make any quick "pop" money on the IPO at all, that means you got filled while the market was rising, and on an odd lot, that means some banker somewhere fucked up. The chance for you to make money is where the IPO becomes some freak of nature, like Netscape, where basically the public becomes completely unbalanced and goes into a tulip bubble mode. There's a bit of a "who's the sucker at the table"/"musical chairs" situation here. Like, if you want to buy the stock just because you believe someone else will pay more for it immediately…who is that guy? Why are you not the last guy in the chain? Why is he buying it? He thinks the same thing, right?

Here's the other thing: I won't feel stupid if it turns out you get filled at $40 and the stock closes at $100. It's totally possible for that to happen. I wouldn't advise you wager on a coin toss paying 1.5 to 1 either, even though you'd have a 50% chance of winning. It's just not a good bet.

My advice is that you should only buy this IPO if you believe the company is a good investment at the offer price (or more realistically, at the price you will get filled at).
posted by jeb at 10:35 AM on May 8, 2012 [125 favorites]

I'm no kind of finance guy, stock broker, or professional gambler, but I'd approach it the same as I would the blackjack table if I only had a $20, a $10, and two $5s in my pocket: Once I'd doubled my money, I'd cash out my initial stake.

But don't listen to me, listen to jeb.
posted by ob1quixote at 11:17 AM on May 8, 2012

I'll add to jeb's very good explanation what my Morgan Stanley broker told me yesterday. My (well into retirement age, modestly wealthy) mom asked her about getting into the IPO allocation and the broker explained like this:

MS essentially indexes IPO allocations, meaning you have to take the "crap" (and I'm quoting here) as well as the hot. For Facebook, even if shares were available to good individual clients, that she never took any (read crap) IPO allocations before would rule her out. Not that the broker, who is very senior with many much larger clients in her book, thought there'd be shares for individual clients anyway.

I was happy to hear this since I think buying Facebook shares in the open market will be a bad choice in a three to five year horizon. Frankly I expect it to price near the top of the range and open closer to $60 than $50, a market cap of $150B or so. I would love to see the analysis supporting that price.
posted by billsaysthis at 12:08 PM on May 8, 2012

Quoted for truth from COD (eponysterically):

Don't get greedy.

Take your $500 or $5000 profit (or whatever) after 24 hours and run like hell.

Also, if you're only really interested in this IPO, I wouldn't worry about the threats from brokers that you shouldn't do this as they might blackball you from buying in again. They can't fine/imprison you/lock your funds (indefinitely). But I have been thinking about this, and it's such a freaking crapshoot I've decided off of it. Basically, I think the odds of the stock dipping after a high start is about equal to a runaway rise, so you could buy in to a heavy loss.
posted by IAmBroom at 12:21 PM on May 8, 2012

What jeb said. If the underwriters haven't already been in touch to promise a sweet deal on the day of the IPO, chances are you won't get one.
posted by holgate at 12:34 PM on May 8, 2012

Huh, I never knew about a secondary market.

The more you know, and all that.
posted by tilde at 12:41 PM on May 8, 2012

How Goldman Sachs Blew The Facebook IPO
has a bunch of information about the IPO process from the viewpoint of Wall St. and Facebook. The individual investor is almost never mentioned.
posted by gen at 10:56 PM on May 8, 2012 [1 favorite]

Something else to consider: if you're looking to ride the FB wave, but can't get initial shares, then you may want to possibly who knows perhaps (and a million other qualifiers) think about purchasing RENN or QPSA. These are FB equivalent stocks (RENN is China's FB and QPSA is Latin America's FB). I would actually stay away from QPSA because of various reasons, but RENN may be a good one-week play. They announce earnings on May 14, so you may wait to jump in after that. In the day or two before FB goes public, there will be people looking to buy in, and I wouldn't be surprised to see some of that money go to FB equivalents. As mentioned above, though, don't get caught holding the bag. I'd sell on the day of the IPO, if not the day before.
posted by (Arsenio) Hall and (Warren) Oates at 5:49 AM on May 9, 2012

Although, looking at the weekly chart, the RENN ship may have sailed already.
posted by (Arsenio) Hall and (Warren) Oates at 6:19 AM on May 9, 2012

@MktplaceRadio> How to get an early piece of Facebook's IPO
Joe Magyer (Motley Fool): You could go ahead and, you know, express to your broker that you'd like to try and get shares. Odds are that you probably won't get them.
Not to worry, says [Southern California investment advisor Robert Pagliarini]. Investors could learn a lesson from Google's IPO.
Pagliarini: I mean there was a lot, plenty of opportunity to buy into Google after the IPO, and after the "pop" of Google, and so you don't have to be in on Day One.
In fact, he says, investors might even be better off waiting out the euphoria.
posted by FlyingMonkey at 4:03 AM on May 16, 2012

Fri May 18 07:29:18 2012 E*TRADE Financial Account Alert 1234-5768 RE: Public Offering Order 20 FB.We were unable to allocate shares. Possible reasons: Offering priced above limit or high demand for shares.

posted by tilde at 5:31 AM on May 18, 2012

So far it has lost 15% of its value from the offering price of $38 even though the market as a whole has been up slightly over that period, so the hold for a few days strategy wouldn't have worked in this case. Whereas the people that sold immediately when the stock opened at $42 would have been able to make a quick 10% profit if they were fast enough (and if the NASDAQ trading problems didn't stop them from doing it). This is a good example of why these sorts of short term trades are mostly gambles, if you have a properly diversified long term investment portfolio you're probably not going to lose 15% in three days unless something huge happens in the economy.
posted by burnmp3s at 7:57 AM on May 22, 2012 [1 favorite]

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