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FB again and again!

August 18, 2012

My opinion: FB is the worse performing stock in history, short of the arm-chair analysis by those with commentary credentials. That one is even worse. This scenario compels me to continue to write about FB from a psychological perspective. Here are a few rules to follow:

1. Supply and demand: FB is dumping a billion new shares on the market. Obviously Zuckerberg wants FB share price to go down to $10-$15 per share. Less obvious is why? Does he want poor Indians to buy FB and become rich one day? Maybe. I don’t know his plan but when you lose 60 billion dollars in 3 months and you still sleep well at night, it appears that Zuckerberg has self-confidence in what he is doing. Shares will go up one day.

2. Buying and selling: People who are selling FB shares are motivated by fear. Their loss aversion dominates their reasoning power to limit their losses from $38 to $20 per share. (a big mistake for future capital gain). People are not buying FB at $20 because they know that the price per share will drop more. They are right. At $15 you will see a real bargain hunting, bottom fishing by investors with patience. Winners!

3. FB balance sheet: FB earned almost 3 billion dollars since IPO, a fact masked by fear. FB will stay an underestimated company for now until Zuckerberg realizes FB’s real potential, and I don’t mean mobile phone advertizing. FB balance sheet is good and getting better but share price is dropping because stocks movement in general are more related to psychology than to balance sheet.

4. FB potential: Hugh! The year is 2015! Take Mrs. Jones, for example. She texted her sister on FB that she is pregnant. FB gave the information to 5 companies for a 4% commission. Mrs Jones received discount offers on great products for the baby room (great public service, reasonable price, great products, convenient to Mrs Jones, etc.). Everyone benefits, even the investor who didn’t sell in 2012!

Good luck!

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