Facebook and more investor irrationality

I’ve never understood the stock market and share trading. While I get the occasional itch to roll the dice and play the buy/sell game, my limited disposable wealth, fear of loss accentuated by my ignorance, and a general conservatism that overpowers any budding gambler’s instincts have combined to keep me a passive and cynical observer of the markets. I derive some pleasure in the roller-coaster ride of the indices; more so in the inexplicable causes that power such a ride. Honestly, I find the whole thing rather irrational- despite all the sophisticated charts and trend graphs that they show or the percentages and ratios that some ultra-bright people keep talking about.

The Faceook IPO is the latest case in point. Till about a week or two before the IPO, Facebook and Zuckerberg were the global darlings. There was nothing better in the world than the IPO! The media hyped it up; analysts hyped it up and other than a lot of envy for a 20-something to be joining the ranks of some of the world’s richest billionaires, it was THE event worth looking forward to. Then, the D-day(s) happened. FB got listed, Zuckerberg got married, encashed some of the paper worth (probably for a honeymoon somewhere), the stock plumetted and a new term ‘zucked up’ got added to the English language. More analysis and a single conclusion- Facebook is grossly overvalued!

C’mon! What really changed in less than one week to create such a radical shift in opinion? In my understanding of factors that could influence stock price— and let me remind you, this is not an expert view–nothing had changed. Let’s list some of these potential factors:

a) The business itself
b) Business performance
b) The business model
c) The people running the business
d) Legal/ regulatory framework
e) The external business/economic environment

Other than the founder getting hitched and offloading a tiny portion of his holidngs for a little bit of liquidity, the post-Facebook IPO world hardly looks any different. Yes, there may have been a couple of additional academic papers published on global warming and its damning consequences; news of an aspiring politician being questioned in a corruption case in India or that AIDS is still rampant in a certain part of the world. But if any of these were to have influenced the downward spiral of Facebook stock, then I understand the phrase ‘that’s a stretch’.

Hopefully, some of my bright friends- who spit out fundamentals, P/E, shorting with amazing frequency- will help me overcome my prejudiced view of the irrationality of investors and the stock markets (they will need phenomenal patience, though). Or, is this quite simply the stuff that only genius is entitled to fathom?

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