Vincent Safuto’s Weblog

Notes and observations

Facebook IPO just another Wall Street screwing

In the days before Facebook went public, the hype sounded like the dot-com hysteria of the 1990s all over again.

Remember those days, when the Nasdaq index was soaring and we were all going to be Internet billionaires? I recall reading a book last year about the golden era of the mid- to late-1990s, when talk of a company introducing a new version of its website was enough to send its stock price through the ceiling.

Those were the days, and I lived through them. When an outfit selling cat litter and puppy wee-wee pads seriously believed that it could just burn through investor cash building market share and facilities all over the U.S. because someday it would put the grocery stores out of the pet food and cat litter business. Someday. In the meantime, buy shares of the stock – even on margin — and watch the price soar!

Ahhh, the magic of Wall Street and the free market. We can believe again. Those stockbrokers advertising on TV are out to make us rich, and this time they really, truly mean it, and the SEC is there to make sure we don’t get burned again. CNBC was full of ads for brokerage firms that could turn your dreams of Internet riches into reality, just by buying into someone else’s dream. Buy 500 shares of goatfungus.com at $15 per, then watch as it soars to $150, splits twice and pays dividends while helping the environment.

Profits? We don’t need no steenkin’ profits. Not yet. We’re getting market share like crazy. Profits come later. Everything has changed, and we’re on the cutting edge.

And baby, we just ate it up: the hype, not the goat fungus.

After all, Wall Street was our friend now, and those guys and gals on the floor of the NYSE were on our side now. The fallout from the 1987 crash and that pinko, left-wing movie “Wall Street” were old news and fictions spread by socialists and communists who wanted everyone to be poor. We’d all get rich together on stocks and stock options, and retire to tax-free havens to let the poor suckers who didn’t buy Yahoo! at $25 subsist on government cheese and welfare checks.

We’d be the new 1 percent, smart because we were worth millions on paper and could borrow against that value, and Wall Street would help us.

All those commercials were showing little kids at the beach, our little kids, and we’d have time to be at the beach with them because the new golden age of life was upon us. Work a few hours a day trading stocks on your laptop, and then sit back and relax. And if you were really good, you could day-trade, making money on the tiny, up-to-the-minute ups and downs of stocks.

Drinking the Kool-Aid
I bought into the hype a bit, too. I was working for the Boca Raton News and making $27,000 a year as a copy editor, page designer, senior copy editor, business editor and website guy for the small daily, but I watched CNBC every day and heard about those dotcoms in journalism that were going to hit it big.

In December 1998, I moved over to a company called Bankrate.com, and one of the attractions was the prospect that it might go public someday. I worked hard, made good money, learned a vast amount about personal finance, watched the countdown to the year 2000 and bought 100 shares when the company did its IPO.

It seemed like the good times would never end. Remember those days? Oh, to be young and alive then, riding the wave of good fortune. The company changed its name to Intelligent Life Inc. (Ticker symbol: ILIF) and we were going to be on the Nasdaq!

I remember the day the IPO was priced, and how the stock went up about a dollar, and then fell below the opening price. Then it sank more and more.

Something was wrong. Dot-coms were the future. Growth was a given, like the rising stock market. I was supposed to get rich on company stock and options. Sure, I made a nice salary, but everyone told me the real money was in the company going public.

Then, there was that terrible weekend when Barron’s put out its list of dot-coms that were going broke, and in the middle was Intelligent Life Inc. We were burning through cash like nobody’s business. Sure, we were taking in revenue, just not enough. The stock and other firms’ stock began to sink. Gravity was reasserting itself. It was all coming down. Things hadn’t changed.

Soon, we had a bad day. You know the day, when you’re told to just sit at your desk and work, while one by one your co-workers are called in, then they come back with the box and start to pack their stuff.

I told my boss I had no hard feelings if it was me, but it wasn’t my turn that day. They gave the survivors the rest of the day off, but asked us to attend a meeting later that day. One of the guards at the meeting had a gun, but we were all professional about it. The company was heading off in a new direction, we were told, and we had a new CEO.

I stayed at the job, and left on good terms at the end of 2000, and started a new job – at my old job – the Boca Raton News. I had sold my stock at $8 a share, and swallowed the loss. Some friends of mine bought the stock for the tax loss.

But a funny thing happened to Intelligent Life Inc. After being delisted from the Nasdaq, instead of becoming a dead dot-com, it revamped itself as Bankrate Inc. (Ticker symbol: RATE), got back on solid footing, was re-listed on the Nasdaq and my friends were rather gratified to find that their tax-loss stock was generating profits for them.

But I was gone, burned – albeit not too badly — by the dreams of the stock market. I learned my lesson. Beware of stocks and IPOs. Beware of the hype, and concentrate on good stocks of companies with real revenue, profits and a vision for the future. Sure, such companies can and did go down in flames, but not like the dot-coms of the boom era.

Nothing has changed
After the people have handed over all their money to Wall Street, and after it’s gone and we have to go back and try to rebuild our lives, the stock mavens relax on their enormous nest eggs and wait out the rage and the frustration of those who feel cheated yet again.

There’s a new crop of politicians to buy, a few explanations to make to congressional committees and, of course, new CEOs to integrate and initiate into the holy mysteries of the stock market. Needless to say, there is billions of dollars in government bailout money that has to be digested, and in the meantime investment types relax with their copies of “Atlas Shrugged” and “The Fountainhead,” consoling their damaged egos with the intellectual bromides of Ayn Rand and reminding themselves of the horrors of government intervention in anything outside their little world.

People need time to rebuild their finances for the next Wall Street screwing. There are slogans to coin, ad campaigns to invent and cute children to give screen tests for the next commercials for brokerages.

Déjà vu all over again
I would have thought that we had seen it all. After all, the dot-coms that survived the big meltdown of the early 2000s grew into giants. Amazon.com, one of those dotcoms that promised to remake the world and once the subject of endless obituaries, is now a retail giant in the online world. It has remade the world of retailing, growing beyond books to just about anything that can be sold and shipped.

Think of the other dot-coms that made it, and how their success has changed so much.

And then think of those that emerged from the wreckage, found a brief moment of success and fell back to earth.

I’m thinking here mainly of MySpace.com, which was the prototype social network that today is the punchline of many a bad joke.

There was a time, though, when MySpace ruled. At newspapers I worked at, articles both from local reporters and wire services flowed in and landed in print and on websites detailing bad things that happened to the innocents who created websites on MySpace. There were stories of bullying, suicides, fake profiles, school cheating and so much more.

Political leaders, the clergy and countless authority figures inveighed against MySpace, and the stock was talked up and up and up. In what was probably the biggest investment error of all time, Rupert Murdoch’s News Corp. bought the company. Years later, it took a brutal loss to sell the company.

There came a time when MySpace stopped being “cool,” and the horror stories ended. Then we began printing stories detailing bad things that happened to the innocents who created profiles on Facebook. There were stories of bullying, suicides, fake profiles, school cheating and so much more.

Political leaders, the clergy and countless authority figures inveighed against Facebook, and the stock’s prospects were said to be limitless.

MySpace is still out there, a shell of its former self. Go ahead, tell someone that you have a MySpace account and then get ready for howls of derisive laughter. And today, Facebook is the cool place to be.

America Online was once a behemoth of the online world. I can remember getting those 3.5-inch disks in the mail, and the time when I finally took the plunge and signed up. With my 486DX2/66 PC I signed up, gave them my credit card number, and created the boot disk you needed to get to AOL. It ran on a run-time version of a windowed operating environment called GeoWorks. In January 1993, AOL for Windows was introduced, and we were off to the races. Finally, you could get into your AOL account without rebooting your computer with a floppy in the drive.

AOL chat rooms were deemed responsible for all sorts of social deviancy, and it was the hottest place online. So long as most of us had to have modems in or attached to our computers, and had to dial in at a top speed of around 50,000 bytes per second, AOL seemed like the way to go. But then “broadband” came in, and suddenly AOL’s POPs (points of presence) became useless. Cable companies began offering high-speed access and phone companies offered DSL. Suddenly, you didn’t need AOL to get online.

Today, AOL is a shadow of its former self, and gets blamed for no social problems. It barely exists in most people’s minds.

But Facebook is now dominant, and when the Wall Street hype machine started talking up its stock, it sounded like the good old days of the late 1990s all over. I was worried, though.

Even though a few business columnists cautioned against exuberance over Facebook’s possibilities amid questions about how the company was managed, how it made money, what it did with the private data of its members and more, most people seemed to be happy to see a highly publicized IPO.

It’s becoming apparent that Facebook’s IPO may have been a shot at screwing investors over, and that all the information may not have been out there. In any case, you can have all the information in the world, but if that doesn’t stop you from making a mistake with your money, well, that’s life.

When it comes to Wall Street, many of us have “Stockholm Syndrome” in a big way. We keep expecting the 1 percent to look out for our financial interests, and after they screw us we still go back. Is it any wonder that a financial firm referred to some of its British customers as “muppets,” a derisive term in England that means a person of low intelligence.

In the U.S., we have “whales.” Those are folks with lots of money but little stock market savvy whom brokers try to hook so they can trade for them and make huge commissions.

For the rest of us who’ve been screwed by Wall Street, and even those who haven’t been screwed, it’s back to square one financially, poorer but hopefully a little wiser.

And, to paraphrase the old racetrack saying, “Don’t bet on the races,” consider this: “Don’t play the stock market.”

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May 29, 2012 - Posted by | Life lessons, Living in the modern age | , , , , , , , , ,

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