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A Squib Round

In shooting a squib round is one with insufficient powder to push the bullet completely out of the barrel. Unlike a dud, there is sound but the barrel is plugged.

That is essentially what happened with the Facebook IPO today but the BBC is more polite: Facebook shares see modest debut

Facebook shares ended their first day of trading at $38.23, barely above the company’s initial pricing of $38.

Shares in the social network rose more than 10% to $42 within minutes of trade beginning, before quickly falling back.

Later gains were wiped out too at the end of a volatile day’s trade, as the firm’s debut on the Nasdaq exchange was also delayed by a technical glitch.

The stock’s underwriters had to buy shares to support the $38/share price, so the actual market price was below that level. NASDAQ was off by 1.24% for the day, joining the down trend in all of the major markets.

I see the press erroneously reporting that principals in the company are now millionaires and billionaires because they own stock that is now being traded. They have paper, not money. Their stock is only worth what someone is willing to pay for it if they sell it. If no one wants to buy the stock, they are broke. That is the dirty little secret of owning stock, as a lot of people with 401Ks have discovered.

Why would anyone buy Facebook stock at a price-earnings ratio of 100 [it would take a hundred years for current earnings to make that much money]. This was heavily promoted by the underwriters and the media, and no one cared. The people with money to invest, are investing it in T-bills, not Internet companies.

May 18, 2012   6 Comments

Friday Cat Blogging

Eyes Of The Tigers

Friday Cat Blogging

We’re watching you!

[Editor: The two tabbies have found a nice place to lounge in a pile of stuff on the side of my house. They are definitely not interested in any interaction with me. They moved from the pump house because of too many ‘visitors’.]

Friday Ark

May 18, 2012   8 Comments