Mark Cuban says the Facebook IPO was handled exactly as it should have been by the company. And without getting into the really mundane specifics (like whether they knowingly misled investors about growth, but that’s a totally different story) I think Cuban is exactly right. First, some basics. The primary purpose of an initial public offering is really rather simple – to raise capital that helps the company sow the seed for future expansion. That’s it. So the goal of an IPO is to maximize capital raised. The goal is not to manage the stock to make sure investors get a good return on the days, weeks or months directly after the IPO. The goal is to raise capital that allows the company to leverage its operation and create the foundation for long-term growth (which, theoretically, should create substantial share price appreciation). Cuban summarizes his take:
“Facebook was able to raise about 10 BILLION DOLLARS in this IPO. The CFO’s job is not to manage shareholder portfolios. His job is to help Facebook succeed. I don’t know about you, but putting 10 BILLION DOLLARS in the bank in my opinion is one way to help them succeed.
Whose job is it to help manage the portfolio’s of FB investors ? If an investor doesn’t manage their own portfolio, the brokers who sold them the stock are responsible. It’s their job to read the prospectus if you as an investor are too lazy to do so. It is the job of the broker to help the investor understand the value of the company and make a buying decision. No question that there are a lot of brokers out there that did not do their jobs.
As far as traders who bought the stock hoping for a pop. No one cares about them. Seriously. You trade, you know you are going to lose on trades. That is how things work.”
Dead right. If you bought into the Facebook IPO and you lost money, then you lost. That’s how the stock market works. When you sit down at the Wall Street poker table you’re sitting down with grown ass men and women who are prepared to take your wallet right out of your hands if you’re not as prepared as they are. No, scratch that. They’ll take your wallet and come back for the shirt on your back if you let them. That’s the market. It’s brutally real and if you’re not prepared or tough enough to accept the enormous responsibility that comes with it then you’re in the wrong arena. As Cuban says:
“When you sit at the trading terminal you look for the sucker. When you don’t see one, it’s you. “
It’s not Facebook’s fault that the shareholders in our “what have you done for me lately world” have lost 50% in 4 months. It’s the buyer’s fault. And yes, I know that some people think IPO’s are purely for insider exit strategies. I don’t think this is entirely true, but even if it is true then you knew what you were getting involved in before Peter Thiel and the other insiders decided to unload their shares in your lap. There’s no crying on Wall Street. And no one’s crying for the Facebook shareholders who lost money.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.