HOW GUYS WITH USELESS DEGREES AND AN INEXPERIENCED RETAIL INVESTOR ARE CREATING A BUYING OPPORTUNITY IN FACEBOOK
I have resisted putting up a dedicated post about Facebook. I didn't want to add to the already crowded field of Facebook and social media experts postulating about the future of the company as if they were sitting right beside Peter Thiel when he threw down the $500,000 that would eventually become billions. But today I had enough. I witnessed a sour-faced attitude towards the stock today that was completely one-sided, with very few individuals, analysts or responsible professionals looking at the contrary angle.
I don't know how deep this hole that it is in will go. I do feel that anywhere in the 20 range is a good buy for the stock. With the mid-20s being extremely attractive. I'm not in the business of mega-cap names. If I choose to play social media I will likely gravitate back towards YELP, which thanks to the gods of risk aversion, I cut out of the portfolio weeks ago with a manageable loss.
What follows are a couple illustrations that demonstrate how the financial markets have a difficult time initially valuing names that are impossible for those touting useless degrees and credentials to model a valuation. Their valuation models for names such as FB will always point to absurdly overvalued because these individuals, through their years of schooling, having learned that having vision...actual raw vision...is a liability and gets in the way of facts. When facts rule your life it is impossible to have vision about any subject, whether the future of a company, the economy or whether you will ever have sex again without pulling out an Andrew Jackson.
So in one corner you have the useless degree types and in the other you have the typical retail investor who only got involved with Facebook because they saw the movie Social Network and spend an hour on Facebook revealing intimate personal details about themselves, like what kind of cheese they hate on a turkey sandwich or how the colors of the cake at a 3 year old's birthday party didn't match her mother's dress. With these two concrete pillars supporting your investment thesis, how can one go wrong?
Here's how: The stock falls under the weight of both of these groups right from the onset and doesn't look back. I didn't realize how heavy the weight of the casual investor would be in Facebook until I, like everyone else, witnessed the free fall the company has taken part in since its inception.
The guys with the useless degrees are putting together models that are calling Facebook overvalued. Meanwhile, you have a core group of inexperienced investors causing havoc with the price as they are being frightened by news articles and research reports from the group with the useless degrees. It creates a vicious cycle of mistrust. The useless degrees turn up the heat on the negativity and begin contemplating dramatically slower growth at Facebook as a result of the reaction that the retail crowd has to the their research reports. The retail crowd panics, the useless degrees panic and create more negative propaganda.
The perfect cycle of negativity and stock obliteration ensues.
Don't believe me...here are examples of two other companies that were completely misunderstood and had the exact same dynamic of useless degrees vs. retail investors. Check out what their stock price did:
click chart to enlarge
YHOO
LNKD
Just two examples here, there are literally dozens. The bottom-line is this: Facebook is caught in a rough patch given the dynamic of the current trading environment. It is the equivalent of finding a pile of shit in your driveway and then using a powerful hose to clear the pile of shit, only to find that there is shit in the cracks. So you keep spraying and scrubbing until you can be sure that you can walk around your driveway without coming up with doo-doo shoe.
The current batch of investors and analysis of Facebook is the pile of shit. The market is the high pressured hose. Slowly pieces of shit are being washed away bit by bit until the driveway is, once again, able to be traversed without worry of doo-doo shoe.
Only when there is no more doo-doo on the driveway will Facebook put together a sustainable uptrend. More doo-doo rinsing to come.
