Seems like the hottest topic of discussion wherever I go is, "Are you buying Facebook?" The most popular answer I've heard yet is, "I'm not buying. It's a bubble. Let me give you the numbers. There's no way Facebook can make money in the long-run." Ah, if only that's how people invested — based on company balance sheets. I'd be rolling in the dough with all my Microsoft stock. Seriously. Go look at Microsoft's quarterly earnings for the last few quarters. Additionally, the argument assumes that Facebook will have only one product in the future — that Facebook site where you spend 20 minutes a day signalling. But try to read between the lines of Zuckerberg's open letter to shareholders, and you should be able to come up with at least three services Facebook could launch that'd completely transform the existing market in those areas, and generate a pretty penny in the process for shareholders.
But, that's not why I am buying Facebook.
Here's really why (edited version of an email I sent to a few coworkers earlier today) —
My in-laws are habitual traders. They deal in calls and puts, and somehow make us $15-20K every year without selling a single share. I’ve been watching them pretty intently, and the most interesting (frightening, even, but given what we know about irrationality, completely expected) thing about their predictions and trading practices is that they often have NOTHING to do with the actual company financials or factual potential. Literally, there are times where their advice seems to defy any mathematics or logic (to me, anyway), but they’ve rarely been wrong. They judge the markets based on the network shows (CNBC/FOX/etc. — they watch every show, every day, from 6am to noon), magazines/publications that are accessible to the common man, and a bunch of predictive charts (candles, etc.) Really, what it sums up to is that their trading practices heavily take into account top drivers of market perceptions rather just company financials (in other words, they’re pretty tuned into the sentiment of the average trader out there).
All of this is hardly a surprise, though. There are so many studies out there that show that an average person's chances of predicting the stock market are usually higher than those of investment bankers (people tend to pick on really simple heuristics like, “Have I heard of this company before?” or “When I hear the name of the company, do I get a good feeling or a bad one?”) See some of the fascinating studies conducted by Gerd Gigerenzer.
So, I’m on the buy train, unless my in-laws really push back. I really have no expectations of seeing Facebook rise to $500/share or something like that (I promise not to complain if it does, though). I’m buying, and then forgetting about the shares. And given that Facebook has a market cap bigger than Donald Trump's ego, that it's led by a young CEO who's hungry as hell to make a dent in the culture, and that the overall market perception of Facebook is very positive, I'm betting that it's going to be some time before Facebook fades away.