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Is Facebook still a game changer?

August 7, 2012

Please go to Google and learn the definitions of Kahneman Systems 1 and 2 before you read this posting. Thank you. My first posting was about Facebook’s IPO being a game changer, this posting is about Facebook itself becoming a game changer. I think Facebook is going to be a gold mine in 3-4 years. Let’s deal with the numbers that indicate the trend toward wealth that have to do with projected earning and share price (classical economics). Trend can be predicted only if you understand behavioural economics, that has to do with expectation, fear, loss aversion and decision-making affecting trading.

The numbers I present are only estimates and projections (Kahneman System 1). Why? Because successful investing requires converting basic statistics from Dr. Kahnrman’s System 2 to applied statistics (Dr. Kahneman’s System 1). Remember the rule of successful investing: Do not be accurate, round-up the numbers to be functional, use applied statistics softly, not basic statistics, convert hard numbers to soft numbers, etc. (by the way these rules apply to relationships too (improve yours by becoming LESS accurate in you assessment of him or her!).

Facebook earned 1.2 bllion dollars  the first quarter and 1.4 billion the second quarter. Facebook has to earn at least 1.8 billion per quarter for its shares to start climbing nicely for investors.  Every quarter Facebook is short of the 1.8 billion you have to add the difference to the equation. In the first 2 quarters Facebook was behind one billion. The first quarter Facebook earnings was short by .6 billion and the second quarter by .4 billion. Can Facebook do it? That will depend on Facebook using its huge information base about people anticipated buying and selling behaviour in order to target consumers. I think Zuckerberg and Sanders are smart enough to figure out how to do it. If they do (I think they will) you and I win and if they don’t you and I stay even. The reason I believe Facebook can do it is because even now its estimated earning for the first year is on par with the projected earnings for the future, meaning that Facebook is not losing in the balance book, only in the minds of the dummies who had instant high expectation. If Facebook earns 7.5 billion the first and 7.5 the second year, the deficit will be erased. FB share owners will start getting wealthy with any yearly earning of 8 billion!

Facebook share price is down from $40 to $21, an opportunity to buy if my analysis is correct (check out FB earning the third quarter in October). Most investors are intellectual gamblers. They don’t buy when share prices are down – they sell out of fear (strong loss aversion)! Then they buy when share prices have climbed (dummies)! Listen, Facebook will drop more until it reaches a support level FB feel secure with, established around $15 or $20 per share. At that price people may ignore their loss aversion and modify their original high expectation for a quick buck.

Here is a little note for the non-gambling investors, the smart ones who plan to be rich. I wrote 2 books on the psychology of investing. What I do with FB shares going down is called stacking down, each sizable drop is an opportunity for BLASH that comes often enough if you understand this concept (you will find my concepts in my blogs too. You won’t find most of my concepts in Google or in other books)!

One Comment leave one →
  1. August 8, 2012 4:51 am

    Generally I don’t learn post on blogs, but I wish to say that this write-up very compelled me to take a look at and do so! Your writing style has been amazed me. Thanks, quite nice post.

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