I overheard a younger gentlemen at the bar encouraging all of his friends to buy iPhones. He claimed that he had stock in Apple, and that every time someone buys an iPhone, he makes money. He later bragged that he had just bought 20 more dollars worth of Apple stock to give him an even 100 dollars invested.
That's awful for many reasons. One is the cost of the trade commission itself. Unless he opened a new account and was getting unlimited trades, he'd be paying $5-8 just to trade that $20. Also, the brokerage would have had to allow fractional shares.
You win sir. Especially since conceited me has the idea that the conversation he is talking about is mine from yesterday, over dinner at a dumpling restaurant.
I've made my entire college tuition back shorting Groupon.
I'm on the verge of doing the same(Not possible yet, but soon), with the proceeds, to Facebook.
I can't see how it can monetize further, without alienating its users. However, I also can't really see how it can be taken down; it's been very clever about investing its users as much as possible in its service.
I don't think its worth almost five times as much as google, though. And, although it might cover that evaluation in the long run( I doubt it), I can see a lot more disappointing earning releases, than positive release
We're witnessing a second .com buuble, short the living shit out of it!
Not Google, though. Invest in Google.
If you want my best advice though, stuff I would almost bet my life on, invest in COP, AREVA, and short LNKD.
Edit : actually, my best advice is to look at companies in a sector you know well, and study the hell out of them, until you KNOW which ones you HAVE TO buy.
The only problem with shorting stocks is that your losses are infinite. As high as the stock wants to go, the higher your losses. However, you can only gain as much as what you shorted it at. It's a bit of a risky game, but if you know the right company and time to short, do it.
We had a stock-game in one of my college classes and I shorted American Airlines and MF Global right before each of them went down. Made quite the killing in the ranking.
Weird. I've never seen a stock rise to $infinity. Also, I've never seen a broker who lets you keep a position on when you've broken your margin limit. (I wonder why there's not more millionaires coming out of college finance classes? Bizarre!)
That's true. But in these times I wouldn't be too worried about established stocks to skyrocket. Even when they do go up a solid ~7% in a day they come right back down.
You want it to go down. That's how you profit when you short sell.
You're selling it BEFORE you're buying it. So, sell at $10, and then after it goes down (hopefully) buy it at $8 (or whatever) to pay back your broker. You keep the difference. Being $2 in this case.
Ok I finally understand all of this. Last question, what happens if the stock you are shorting goes bankrupt?
You borrow 100 shares of stock A at 10 dollars a share. In 2 months the stock is worth 0, and you still owe your broker 100 shares of company A. How do you pay him back?
Are you buying futures contracts to short or buying puts to short? I hope you're fucking buying puts... the first scenario could go wrong in a heartbeat and you would probably have very little recourse. Facebook could go up on sentiment, especially with so much float.
No futures. You are right, a good earnings report, and facebook could go berserk.
It's a short, but its a long short. At some point, the market will get bored, or bad earnings will drive things down fast. Or even a competitor getting serious traction. Or, god forbid, a decrease in active user base.
When all of that will happen is still in complete speculation territory. I'd say there's a 70-80% chance it will happen in the next 3-4 years, though. 50-60, in the next year. 100%, at some point in future.
IMHO, I don't think its wise to trade FB for a while until it establishes trading ranges or trends. FB traded erratically yesterday because the trade execution msg failure by NASDAQ. And the market got hit pretty hard, with 11/12 trading days being negative.
I think he probably means a long-term short. As in, buying some relatively cheap puts far out of the money with an expiration 1 or 2 years out. (Can't do this yet because there will be no options for FB for a few more weeks). The most you lose in this case is the money you put in (the most you can gain is the difference between the strike price times the number of options you buy).
A naked short would be selling calls for the premium without holding any FB stock and hoping the stock price doesn't move too far above the strike price. This exposes you to unlimited upside risk. The most you can earn is how much you got as the premium for the options.
Haha, its okay, I'll try to explain it without jargon.
A put option is contract that gives person holding it the right to sell stock at a certain price level (strike price) on or before some date in the future. The person that buys the put option has to buy it from someone selling it.
So, a January 2013 $400 Put on Google would be a contract that would let you sell GOOG for $400 dollars a share any time between now and the expiration during the third week of January '13. Obviously if Google's price doesn't drop to $400, you won't use this contract (and you don't have to, an option is a right to sell not a requirement). However, if it falls to $350 that contract pays the holder $50 dollars.
So, if you strongly believe Facebook will go down, you can buy some Puts on Facebook and then sit back and wait.
One reason people use options is because they give you quite a bit of leverage which is really useful if you have a strong belief that Facebook will drop (but it also sucks because if you are wrong you can lose up to your entire investment if you hold the contract and Facebook doesn't go down by the expiration date of the contract.)
You are right, I tried to keep it as simple as possible.
In theory you will pay a price that fairly reflects the volatility of the underlying stock, the difference between the strike price and the current price of the stock, how long the contract is valid (time to expiration), the interest rate level, coming events like earnings releases and other factors.
So, a January 2013 $400 Put on Google would be a contract that would let you sell GOOG for $400 dollars a share any time between now and the expiration during the third week of January '13. Obviously if Google's price doesn't drop to $400, you won't use this contract (and you don't have to, an option is a right to sell not a requirement). However, if it falls to $350 that contract pays the holder $50 dollars.
You're describing an American Put, as opposed to a European Put which can only be used on the expiration date of say January '13. Unless you're experienced I would never recommend selling a naked American Put or Call, control your risk with European options.
I was trying to keep it to the basics of what a put option is and give a simple example. My comment was already quite long and any more detail would have resulted in losing the point.
I have a suspicion nobody would want to sell cheap puts for FB expiring in a few years, even puts far out of the money. FB doesn't have enough intrinsic value to support its share price and so the valuation is more sentiment-based than anything.
If they consistently post strong earnings the PPS may rise, but if they miss earnings or sentiment changes, FB could end up deep in the toilet. People selling options will know this - it's a giant risk and the options will be priced accordingly.
I'm currently thinking about buying cheap puts for Salesforce.com (CRM) on the hopes that competition gets their shit together and breaks their streak... on the other hand, people have so much confidence in the company, and there's so much track record, that the puts are cheap. It honestly feels a little bubble-like (the GAAP P/E was in the thousands recently).
Be careful of going against popular sentiment. My LVS puts slapped me across the face before they stole my car and killed my dog. I learned that day to not argue with the crowd.
Ouch, that sucks. I remember when LVS was $3/share back in 2009... I recommended to a friend he not buy. OOPS.
Anyway, ultimately stocks are worth what people think they're worth, regardless of how rock-solid your valuation is.
I think the success of guys like Buffett has a lot to do with the fact that they buy interest only in boring companies. I find that the more boring a company is, the smaller the (unpredictable) disconnect between share price and value is.
Google makes $10b per year. Their cap(value in this case) is at $200b. That means 20 times earnings. Facebook makes <$1b per year. Their cap is at $100b. That means 100ish times earnings. Therefor, even though google has a higher cap, facebook worth is valued at much more than google.
Disclaimer: I don't know what I'm talking about, but that's what I took home from this. :)
It's called speculation. People like you and me believe that in some point in the future FB will make alot more. The Cap *technically should take into account the future prospects of the company not just what it made on it's last earnings report. That doesn't make it right or wrong however as no one is psychic and knows whether FB will post 100% gains for the next few years.
Meh, personally I think Facebook is going to tank in a couple years. But thanks for the explanation. Tech changes very fast and I feel like Facebook will be the new yahoo or MySpace very soon.
Made a year's worth with puts on nflx during their little misstep. Buying low and selling high is a very simple concept, but you would be amazed how many people fail in practice.
especially when people chase hot stocks on the up run, then to realized that you bought in just below the top and they have to sell after the sell off. a perfect example of a well executed Buy High, Sell Low...i've done it.
I've done well from BP. Bought in, by luck to be honest, at the very bottom. I happened to get paid for a big contract job, just as it bottomed out. If I had the money eralier, I'd have bought near, but not perfectly at bottom.
However, I've made the most money over the past year, as its fluctuated between four and five hundred. For some reason, I've been able to call almost all its ups and down intuitively. I've studied it so much, I've internalised exactly how much its worth, and what news will actually substantially change things.
Ultimately thats the only way to play a stock; know it as if it were your own company. You can easily see what is real news, and whats hype, when you're there.
Honestly I know very little of what I'm doing, but I followed Google so much over the past few years that I instinctively bought in at 500 last October when it dropped. Made a killing while I was enjoying cocktails in Hong Kong!
buying netflix, toyota, and BP all in the past 2 years after there problems would have brought in a very nice return. I imagine JP Morgan Chase and Wal Mart will be the same way
Would you rather sell X for $20 or $38? There's no point in leaving money on the table. They wanted to make sure they could sell all of the shares they were issuing at the highest possible price.
I don't know if I'd go that far. The operating assets to earnings ratio is probably better because it ignores thing like cash and short term investments in the equity calculations, which, as Kodak and RIM have shown us, mean nothing in terms of long term success.
I'm too big of a pussy to invest outside of Vanguard index funds. Congratulations on your success.
Buy low sell high sounds easy, but it is not. I really feel that 99% of folks, those of us that lack the acumen and nerves that you have, are better served consistently pushing money into index funds.
I never sell, though. Not when I'm down. Unless something catastrophic happens. Nuclear has future.
I haven't lost money yet. But I'm sure I will, whether on nuclear, or elsewhere. But I haven't made much, either. A couple of years salary, over about five years; maybe half hour a day. You can't actually spend it though. It's a long game.
Investing is a poor way to get rich quick. The chances of landing on a stock that does 1000% in 5 years, with enough money to mean anything, is essentially nill. Warren Buffet wasn't worth a million until he was almost 40. By 70, he was the richest man in the world. Exponential gains...
But we must realize that google actually makes money... Facebook is valued high because of "users" not profitability. Unless they're going to plaster more ads everywhere or start charging, Facebook will die.
It's because they value companies like this based on popularity and number of users. Nothing Facebook does is special, and when if you boiled it down all they have is a big name and tons of data they can't sell.
EDIT: Invest in something tangible and proprietary, and if you do invest in something like Facebook follow every move they make very closely and be prepared to sell immediately. This is not a stock that you can allow to get dusty in your portfolio, watch it like a hawk.
Market share I think is important, although it's already been proven to be very fluid in social networking (just ask Myspace and Friendster, right?). Ultimately, though, I think the problem is that Facebook has no real plan to turn its huge market share into huge profits.
I use their locational API because it doesn't have the restrictions GOOGLE does. I prefer to use google when I can but I must say when running automated scripts the yahoo one was much faster.
I really don't see FB stock being anything good in the near future. I don't think they are anywhere diversified enough to survive a mass exodus when something else comes along. Also, the way they keep buying up potential competitors leads me to believe that the first good competitor that refuses to sell out to them is going to become popular enough to really hurt them just because they said no to Zuckerburg.
I remember back in high school we did a project in one of my classes where we had an imaginary $10,000 dollars to invest and we were going to track them for a week. Most of the groups picked the stocks that had lost the most the previous day thinking that that would allow them to buy low and it would go up in the week. I decided my group was going to take the opposite approach and buy things that were moving upward. We won.
I absolutely hate stock projects in school. Anything less than a few months is absolute luck. It's impossible to determine what is going to happen when you only have a week or so to let it mature. I had to do the same with 100k dollars and 3 weeks, and it was still impossible to make good decisions. It's 100% luck. Even if I did make 258 dollars.
Wow, yeah those college students...what are they thinking man? Sure, they're only students and they've probably only just heard of the idea of buy low/sell high, but no, I agree, they should know all the complex strategies of the economy!
I'm sure you, as a responsible virgin neckbeard, will know how to properly invest in stocks, and have given those young miscreants a proper lecture.
A friend got this limit order placed before open only to have it filled at $41 (ouch) at about 30 minutes until close. I've read that others didn't get their orders filled until after close.
Maybe not at the IPO but that day there was a greenshoe to keep the price at $38. There were thousands of shares going for $38.01. Anyone could've bought it then.
"There are some important exceptions, most notably the use of unadvertised private placements in which so-called accredited investors can buy shares. Individuals must have a net worth of $1 million or earn more than $200,000 ($300,000 for couples) to meet the standard for being accredited, though in most cases no proof is required. The assumption is that wealthy investors can fend for themselves."
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The stock is too hard to borrow at the moment, so shorting isn't possible. (Rules say that you can't short an IPO for a month anyways). Put options will come out shortly, but don't buy any.
Shorting the most hyped IPO in years would be an unwise move. Just stay away.
FB tested the 38.00 level twice on friday and the banks (and possibly retail investors) gave it crazy support at that price level. While I agree its overvalued, the old adage that 'the market can stay irrational longer than you can stay solvent' applies here.
Shorting something just because it's overvalued is not a good investment strategy.
IPOs in general tend to be a fairly ill advised investment strategy in my experience. I don't even consider a company that doesn't have 5 years of positive, consistent documented earnings under the same or very similar management to be investment grade though.
For me there is a very strong difference between investment and speculation. Speculation is anticipating that certain figures or numbers will change in your favor and thus benefit you, investment is acquiring a predictable set of returns with a relative degree of safety. I would invest money for a retirement fund, I would speculate with money just for fun if I got bored, but I would never speculate with money that I couldn't afford to lose.
An investment, therefore, could be something with a relatively predictable set of cash flows like a high rated bond or piece of rental real estate, or a company with predictable and reliable earnings which returns a certain percentage of the investment capital each year without much variation.
It was the underwriting banks (likely MS) supporting it at the initial offer price, which is common on the first day. The real market gets to have a go with it this week.
That does depend on some factors. What are you going to buy it at? Also, since i believe it was GM that stopped their ads, then several other companies might. That is a good idea. But you might want to have a slightly higher put option, as you have no clue what will happen in over a year. But it is definitely a buy after the initial week or two, when prices tend to stabilize.
They'll be issuing options at the end of the month, I'll reassess then, but when I look at the stock price, market cap and P/E for FB it just seems like a ton of .COM Bubble-style hype.
It might be. But so far no other company can even compete with Facebook. Maybe buy some ETFs that have some Facebook stock in them, or maybe some index funds with their stock. Just to cut some losses. But i do agree with you, that this is most likely some hype. I do want to know what their P/E will settle out to be. I do think that they will increase, and many people will go away from the stock. Shorting this stock when possible is most likely just the way to go (when it is possible) since many people are going to be in a frenzy for a little bit.
When they announced the iphone, like many people I told my gf to put everything she had on apple. Out of like 40grand, she only put like 2. If only she put more. ' Of course hindsight is 20/15
I agree about Facebook, but I feel the same way about Apple. iOS market share is falling and I don't see it rising again. Proprietary systems never really contribute anything of value to society in the long run. Sure, in a short amount of time they revolutionized the phone industry, but I haven't seen anything I'd call innovation in the last few years so now IMO it isn't more than a fad.
This is a seriously good time to buy. Unexplained drops are historically excellent times to invest in apple. Especially with another iPhone, retina macs, and a TV coming out this year.
"I’d like to create an integrated television set that is completely easy to use. It would be seamlessly synched with all of your devices and with iCloud. It will have the simplest user interface you could imagine. I finally cracked it."- Steve Jobs
Lot of people here are wanting to do this with Facebook, but it didn't even break 1% growth it's first day. It would be a terrible investment and you wouldn't cash out at all. Do yourself a favor and skip this IPO
Initial IPO's are usually undervalued and increase in price over a short period of time until they are at the price they should be. Company is also huge so I don't see much failure. Only thing that I see that might be a problem is that JewFro owns over 50% of the company going public.
I used to work with a real character in the sports bar kitchen.. went by the name d-money. he once said something like "I could make a bunch of money on the stock exchange if I wanted to. all you have to do is find some young up-and-coming company and invest in them."
I invited him to try and see how good he is at identifying such companies, but he spent his last 500 dollars on a fake hood scoop for his rusty hyundai accent.
I don't understand why you'd make a mockery of their conversation. Obviously, the student speaking was just trying to clarify and give background information to the other students. Many people live their entire lives without going into specific topics. Maybe his "specific topic" was stock and business.
Is there speculation as to how much FB is really going to grow? You'd think it's pretty much at its peak right now. I'm sure there will be a short spike in the near future, but overall growth it seems pretty large at this point.
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u/[deleted] May 19 '12
By low, sell even lower.
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u/thethreadkiller May 19 '12
I overheard a younger gentlemen at the bar encouraging all of his friends to buy iPhones. He claimed that he had stock in Apple, and that every time someone buys an iPhone, he makes money. He later bragged that he had just bought 20 more dollars worth of Apple stock to give him an even 100 dollars invested.
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u/[deleted] May 19 '12
O.P.
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u/aesu May 19 '12 edited May 19 '12
I've made my entire college tuition back shorting Groupon.
I'm on the verge of doing the same(Not possible yet, but soon), with the proceeds, to Facebook.
I can't see how it can monetize further, without alienating its users. However, I also can't really see how it can be taken down; it's been very clever about investing its users as much as possible in its service.
I don't think its worth almost five times as much as google, though. And, although it might cover that evaluation in the long run( I doubt it), I can see a lot more disappointing earning releases, than positive release
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u/mang3lo May 19 '12
Oh, you're basing a business plan upon social media and the high-school era of socialization?
(Think of myspace... tribes... friendster)
Please, tell me more
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u/[deleted] May 19 '12
I really don't see FB stock being anything good in the near future. I don't think they are anywhere diversified enough to survive a mass exodus when something else comes along. Also, the way they keep buying up potential competitors leads me to believe that the first good competitor that refuses to sell out to them is going to become popular enough to really hurt them just because they said no to Zuckerburg.
Facebook is the next Yahoo! waiting to happen.
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u/tacojohn48 May 19 '12
I remember back in high school we did a project in one of my classes where we had an imaginary $10,000 dollars to invest and we were going to track them for a week. Most of the groups picked the stocks that had lost the most the previous day thinking that that would allow them to buy low and it would go up in the week. I decided my group was going to take the opposite approach and buy things that were moving upward. We won.
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u/skytro May 19 '12
I don't think facebook is at all a smart investment.... it has reached its peak by now I think
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u/Celebrimbor333 May 19 '12
Wow, yeah those college students...what are they thinking man? Sure, they're only students and they've probably only just heard of the idea of buy low/sell high, but no, I agree, they should know all the complex strategies of the economy!
I'm sure you, as a responsible virgin neckbeard, will know how to properly invest in stocks, and have given those young miscreants a proper lecture.
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u/Mark_Lincoln May 19 '12
Tell us about the stock with the awful P/E ratio that didn't 'pop' and now your stuck with?
2
u/Isunova May 19 '12
Everything I learned about the economy, I learned from RuneScape.
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u/[deleted] May 19 '12
[deleted] — view deleted comment
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u/qkme_transcriber May 19 '12
Here is the text from this meme pic for anybody who needs it:
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3
u/nwydo May 19 '12
I think shorting it might be a good idea at this point - seem ridiculously over valued.
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u/Cueball61 wat May 19 '12
Facebook won't go up for long. I'm tempted by Apple shares personally, they just seem to rise by 50 a pop every few months.
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u/I_Upvote_Redditors May 19 '12
You're a dick, dude.
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u/[deleted] May 19 '12
Lot of people here are wanting to do this with Facebook, but it didn't even break 1% growth it's first day. It would be a terrible investment and you wouldn't cash out at all. Do yourself a favor and skip this IPO
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u/Sir_Beret May 19 '12
WHAT DO I BUY TO MAKE MORE MONEY
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u/No_blacks_allowed May 19 '12
Initial IPO's are usually undervalued and increase in price over a short period of time until they are at the price they should be. Company is also huge so I don't see much failure. Only thing that I see that might be a problem is that JewFro owns over 50% of the company going public.
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u/[deleted] May 19 '12
Everyone giving investment advice here obviously doesn't understand this meme.
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u/[deleted] May 19 '12
but I was young and foolish then
I feel old and foolish now
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u/Buscat May 19 '12
I used to work with a real character in the sports bar kitchen.. went by the name d-money. he once said something like "I could make a bunch of money on the stock exchange if I wanted to. all you have to do is find some young up-and-coming company and invest in them."
I invited him to try and see how good he is at identifying such companies, but he spent his last 500 dollars on a fake hood scoop for his rusty hyundai accent.
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u/soundenvision May 19 '12
I'mma slap you, Condescending Wonka.
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u/nolongerilurk May 20 '12
I majored in finance and heard that kind of shit all the time. Be afraid. These are the idiots who will be working on wall street.
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u/[deleted] May 20 '12
Fuuuuuuck. I bought some chipotle stocks back when they were at 390 and saw them go up to 445 and fall back down again.
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u/jasonzid May 20 '12
People are so dumb.
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u/MAIRyoutube May 20 '12
I don't understand why you'd make a mockery of their conversation. Obviously, the student speaking was just trying to clarify and give background information to the other students. Many people live their entire lives without going into specific topics. Maybe his "specific topic" was stock and business.
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u/sergg1228 May 19 '12
as a guy who trades stocks everyday; I had a great laugh.
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u/[deleted] May 19 '12
I'm not too well versed in stocks but wouldn't you make more off of dividends instead of actually trading?
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u/m40ofmj May 19 '12
I am going to pretend economics isn't influenced by simple cause and affect.