Friday 18 May 2012

A fool and his money are soon parted

To much fanfare, today is the day that Facebook floated on the stock exchange with a valuation of over $100 billion. Yes, $100 billion for a company that doesn’t actually manufacture anything.

A lot of people have made a lot of money from the flotation, including pop star Bono, whose investment company is now sitting on a paper profit of $1.4 billion. Let’s see how quickly he sells those shares and distributes the cash to the poor and needy.

There is an old saying: “Those who do not learn from history are doomed to repeat it.” As investors scrambled to buy shares, did not any of them stop to ask: “What exactly am I buying here?” Did they all forget the dot-com bubble of the late 1990s when internet stocks collapsed as people suddenly discovered that the Emperor had no clothes?

What exactly are Facebook’s assets to support such a valuation? 900 million users, the investment bankers cry. Yes, 900 million users who will drop Facebook at the drop of a hat when something newer and shinier comes along. And it will. As you read this, an army of geeks are sitting in their bedrooms designing the next great internet sensation.

Good luck to all the investors who got in early and sold out quick. To the rest, don’t start crying when it all goes pear shaped.

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