Suing Facebook is an exculpation for own foolishness

Some angry investors decided to sue Facebook, the IPO bank - Morgan Stanley, and Mark Zuckerberg personally after the share price of newly listed on Stock Exchange company crashed down from the IPO level of $38. This is the expected end of a mix of market bubble and Ponzi scheme that is to become at least one of the largest disappointments in business history. There was an enormous hopes, massive money flow of naive investors, and usual and logic slump at the end.

I don't know if the court will fine Facebook and its friends from the banking sector. May be, may be no. It is also not sure if Zuckerberg will go to a cell next to Madoff. It would be a great career - before turning 30 to become the global top high tech genius, the youngest multi-billionaire, and a jail-inhabitant. A very dynamic life I would say... :)) But this last is just a joke - it is clear it will not happen, so the life will not be so interesting... :)))

Anyway more important than the fines and court battles is the real guilt of what happened. And it is not upon banks and Zuckerberg. It is upon investors' foolishness and stupid pouring money in adventurous undertakings. This is the main reason for losses, that I think will not end at $30 per share. There will be some more bitter tears.

The bubble model of Facebook was clear and analyzed long before the IPO. This blog along with other analytic blogs warned that Facebook is over valuated and has no real business model that can repay such an investment. Even Warren Buffet said in a loud voice he will not bet on Facebook. When we add all this to the simple mathematic calculation that Facebook's $100 billion price means that 100 years will be needed to repay the investment, when we had all this information, it is naive to say investors had been not enough informed. It is really possible that Facebook management and serving banks have hidden some data. This happens every day with hundreds of companies. But this potential lacking data is not the reason of the bad investment. There was enough other data that showed the same.

Even now the shares of Facebook are highly over valuated. Compared with the profit data, the company price means repayment in 80-90 years. And no real strategy of how exactly Facebook will make money, out of overcrowded advertising market. So it is absolutely possible Facebook shares to go under $10 till the end of this year. My personal opinion is the real value of shares is $2-3. I would not buy at higher levels.

So, it was predicted this mess will happen. Foolishness always makes big messes. But don't blame others for your own mistakes. It is not their fault you are naive and spend money on funny businesses...

May 29th 2012

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