It seems like it was only a few weeks ago that the financial world was in a buzz over the unlimited upside potential of Facebook. In the most hyped IPO in many years investors were tripping over themselves to be the first in line to get the shares.
After a few technical glitches the much anticipated offering hit the street. At first it appeared that all was going to go well as the stock gained about 15% in the first hour. After that it seemed to hit a wall of sellers and it has been straight down since then.
On Tuesday the shares settled at $25.87 down over 40% since the top tick on IPO day. What on earth could have gone so wrong?
Well we can probably focus on a couple of things.
First the P/E that the stock was caring of over 100 times earns was just not realistic. Does anyone remember the new economy old economy world of the 1990’s? Remember when the new economy stocks didn’t need to make money and people were telling Warren Buffett that he was getting out of touch with reality?
Second many users aren’t using Facebook as much as they were when it first hit the web. Compared to six months ago, 34 percent of users are spending less time on Facebook, while just 20 percent are using the site more often.
The company admitted last month that advertising is failing to keep up with growth in daily active users as more people access the site via mobile phones. Facebook said it is not sure that it has the ability to continue to escalate revenues from mobile advertising.
So will Facebook turn out to be the biggest bust since J.D.S. Uniphase, or is this just a stumbling block on the way to much greater success?
The markets will tell us that, but rather than try and predict to the price we will continue to react to what the market is telling us to do. That is the key to success in this business react to the market, don’t try to predict where it will go next.
Reacting to the market is the key and that takes discipline. Learning discipline is one of the keys to profit.
I have taught hundreds of students the skill of discipline and turning it to profitable trade and I can teach you too. To reach me and have me teach you one on one, you can contact one of my financial consultants by clicking here:
Keep those stops tight.
Todd “Bubba” Horwitz
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