Facebook is a great example of the emotional side of investing. It’s fun to own a company that everyone’s talking about, that you use personally, or you see jumping up in value the way Apple Computer did over the past 2 years. We all want to be associated with a winner because it makes us feel like winners too - nothing wrong with that. But IPOs can be tricky investments based on their history of spiking in the short term, then dropping significantly in price when insiders are permitted to cash out later. One of the best overviews of the pros/cons of investing in the company actually came from a tongue-in-cheek letter from the Founder and CEO, Mark Zuckerberg, posted on the Borowitz Report.
The better lesson to take from Facebook, Apple and others is how technology is driving innovation in the US; and we probably won’t know where the next big thing will come from until it’s already here. In a Wall Street Journal op-ed published May 17th, The Future is More Than Facebook, the publisher of Forbes pointed out the time to make big returns in social media has passed, but there are newer, more exciting technology breakthroughs in the works: Google’s robotic driven car, robotic manufacturing, and high-tech horizontal oil drilling. These technologies will drive down the cost of providing goods and services, improve our quality of life, and create wealth. But the path to get there will be messy. How many companies begin with a great idea, but can’t find a way to make money with it? Or make lots of money at first, then get run out of business by the next competitor who figures out a way to do the same thing, only better (remember Compaq computers?) It’s impossible to consistently predict the winners in advance.
But if you own a diverse portfolio of companies, odds are
you will participate in the next big thing.
If a few of them collapse on their path to greatness, your retirement dreams
will not be crushed in the process, but you’ll still participate in the overall
growth of the economy. It’s not as
exciting as buying Facebook on the day of its IPO, but it’s a better plan to get
rich.
If you really, really want to own shares of Facebook just to
be a part of it, wait until all the hoopla dies down, because the price will
probably be lower then. On the other
hand, you could simply print out the stock certificate published by MAD magazine, and keep yourself broadly
diversified in a wide range of companies, knowing the ‘next big thing’ is probably
already on its way to your portfolio. Jeannette A. Jones, CPA, CFP®
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