Facebook -- no surprise here

So the lawsuits are flying, the investigations are starting up and the market commentators are all tut tutting about the drop in the price of Facebook stock after the IPO. It is another symptom of the flawed outlook of American society on the workings of the market. Facebook sold its stock and the price went DOWN!!! Oh, the horror! Anyone who follows the market should know that when a hot tech company like Facebook goes public, everyone who invests is supposed to make a big profit by flipping the stock shortly after the IPO. The stock was supposed to go UP bigtime. When it fell, someone had to be at fault, right? And that someone has to pay for this mess, right?

The real answer is that we are talking about a market here. Markets go up and down, not just up. The fools who thought that tech IPO's all go up are like the fools who thought that housing prices only go up. Reality broke through and now the whining starts. No one said that the IPO price was the actual assured value of the stock; it was set at a level at which the underwriters thought they would be able to sell the shares. And that was a ridiculously high price. Does anyone actually think that Facebook is worth about two and a half times what Ford Motor Company is worth? I hope not, but that is where the IPO set the price.

Potential buyers in the market have duties before buying which include things other than yelling "me, me, me" when offered a new stock. Buyers had to look at the relevant data and determine if the price of the stock seemed reasonable. I was offered the chance to buy FB stock, but I passed. The price seemed way too high to me. My point is not that I am some sort of seer, but rather that the information was all there and rational decisions could be made. Those who chose to participate in the frenzy cannot now complain that it did not work out the way that they expected.

Some of the brouhaha is about the analyst at Morgan Stanley telling some clients that he had changed his estimates for certain items going forward. So what? Morgan Stanley was barred by law from issuing any written report on Facebook stock during the period in question. The IPO does not forecast future revenues (I believe that it is not allowed by law to do so). That means that Morgan Stanley was not changing the information available to the public when the analyst changed his own view of future revenues. All of this is a long way of saying that Morgan Stanley did nothing wrong here based upon the information now available to the public.

Sometimes when one invests, one loses money. These losses are not meant to be repaid to the poor victims of the loss. They are not victims; they are just folks who made bad investments. The sooner the public learns this basic truth, the better the country will be.