Facebook stock risk warning was there to be heard - The social media website Facebook, which is used by perhaps a billion people worldwide, has reached a new plateau: It is undermining confidence in Wall Street.
When Facebook announced recently it was going public — selling its stock to investors — there was huge excitement, much more than is normally seen for an IPO (initial public offering). Speculation raged for weeks about what price it would sell for when the opening bell rang on Wall Street.
Some believed investors would make a killing on the stock due to Facebook's huge popularity and its dominant position in social media. But it turned out to be a big disappointment, closing lower on opening day than expected and dropping even more in the following days.
There were cries of foul. Disappointed investors who lost billions of dollars claimed the price had been artificially driven up and important adverse information about Facebook's profit potential had been hidden. Individual investors were particularly angry since they paid more than institutional investors.
Artificial manipulation of the price is, of course, a serious charge. That will have to be resolved in court, if it gets that far.
But the reality is that investing is always risky, particularly for the smaller individual investor who does not have access to inside information or expert advice. Jumping into an IPO is especially risky for individuals because the IPO system is stacked against them. The larger investors get favored treatment.
Still, there were lots of people arguing prior to the offering that Facebook was overvalued and wouldn't be a wise investment, especially for individuals. The information was there for those who were willing to listen.
Those who chose to ignore these warnings took a chance and paid a price. That's the stock market.
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