Is Facebook not going play this game, either? That would be admirable. And disastrous for investors.
I suspect what's got people in a lather about Facebook is that they think it could become the next Google or Amazon. Those stocks went public at high earnings multiples, and still managed to reward investors handsomely.
But the bulls forget the big role played by happenstance and luck in business success, and how difficult it is to separate winners from clunkers ahead of time. And there have been a lot of clunkers: ICG, Priceline.com, Pets.com, Netscape and, more recently, Pandora Media, Demand Media and Groupon. The stocks of those latter three are down more than a third from their IPOs last year.
Maybe this is just a matter of taste. I prefer the dowdy and obscure over the hot and well-known.
But I think there's another distinction here. Facebook is a gamble, a fun fling, like buying a lottery ticket. The valuation is just too high, the unknowns too many, to call it an investment. If you're going to sink money into the company, recognize that much at least.
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