Facebook debuts, social-networking stocks fall

[kraznyi_oktjabr]

Originally Posted by Neal Stevens

-snip- But, if you buy a share of stock @ $30 and 5 years later it is valued at $90, you have tripled your investment. You can sell it, money!

"unless they play speculation games"

What does this mean?

Kind of what you say right above bolded part. I decided to use term "speculation game" (not very nice term) because I'm afraid that in case of Facebook its value won't rise faster than inflation. You maybe able to make profit if you buy when price is in low and sell when price is high but I don't see potential for great increase in value for stock itself. Its ofcourse possible that I'm wrong but my opinion currently is that unless Facebook is going to pay dividend its not worth of its current market value.

This means that I'm not investing to it. Others are ofcourse free to do as they please.

[Onkel Neal]

Yeah, that makes sense and I agree, if you as an investor do not see FB or any offering as a good deal, avoid it. Sure, there is some "speculation" involved, there has to be. If it was a "sure thing" the reward would be minimal if it existed at all.

[mookiemookie]

A stock that doesn't pay dividends simply means that the issuing company has decided to reinvest the profits in the business (assuming it's profitable.)

Let's look at an example of a non-dividend paying stock. Berkshire Hathaway, the company run by Warren Buffett, owns all or part of companies such as GEICO insurance, General Re, Fruit of the Loom, Acme Brick, Ben Bridge and Helzberg jewelers, Dairy Queen, Justin Boots, NetJets, Star Furniture (these are major major everyday household names in the U.S.)...also significant stakes in Coca Cola, Kraft, Moodys, Wells Fargo.

So for all of those holdings of profitable companies, Berkshire doesn't pay dividends. But shares of BRK A are trading at $121,000 a share. (Brk B, the shares with no voting rights are $80 a share, but still). Why are these stocks worth these huge amounts of money if they don't pay dividends? Because investors know that the company is going to reinvest its profits into more profitable acquisitions. The company has value because the value of its assets are huge, and that if they decided to start paying dividends, they could certainly do so and pay them well. Shareholders want to invest in good, strong companies. They've decided that Berkshire can invest those dollars and deliver strong growth and make smart decisions with the money so they reward that with a higher stock price.

Growing companies such as Facebook make better use of their revenue by reinvesting it back into the company instead of paying it out to shareholders. Investors reward this behavior with higher stock prices. You wouldn't want a company like Facebook to immediately start paying out all of its profits in dividends - there would be nothing left to grow the company with. It would stagnate and may even start operating at a loss. Then you'd have no dividends and no chances for growth. A lose/lose.

Now if a company reduces it's dividend, or stops paying one altogether....that could be a sign of trouble and is a whole other discussion.

Hope this sheds some light on why dividends are not the only measure of a stock's worth.

[kraznyi_oktjabr]

I understand your point mookie. I'm just not confident enough to Facebook's future to invest. Atleast not yet and certainly not in current price.

Again I maybe wrong. Wouldn't be first time.

[mookiemookie]

Originally Posted by kraznyi_oktjabr

I understand your point mookie. I'm just not confident enough to Facebook's future to invest. Atleast not yet and certainly not in current price.

Again I maybe wrong. Wouldn't be first time.

I agree with you. I'm not sure if they're going to continue to be as important to the internet as they are now. I'm not a buyer.

[AVGWarhawk]

Facebook of old wasn't too bad, but once Zuckerman and his battalion of lawyers discovered they could just keep changing the privacy agreement in their favor, it became a free information orgy.

I believe FB will continue to erode. Stocks selling for that much should offer a dividend. I am not seeing more growth, either.

First My Space then FB and Google+. I see no longevity in FB.

[mookiemookie]

Originally Posted by AVGWarhawk

I believe FB will continue to erode. Stocks selling for that much should offer a dividend. I am not seeing more growth, either.

Still not as expensive as LinkedIn and Groupon...those are trading at a price/earnings ratio of around 152 and 67, respectively. They make Facebook's 58 look like a bargain.

I wouldn't buy either one of those stocks either...you wanna talk about a short shelf life, it's Groupon who makes screwing people and burning bridges its business model and LinkedIn, where I know no one who actually uses it.

[Rockstar]

Originally Posted by mookiemookie

A stock that doesn't pay dividends simply means that the issuing company has decided to reinvest the profits in the business (assuming it's profitable.)

Let's look at an example of a non-dividend paying stock. Berkshire Hathaway, the company run by Warren Buffett, owns all or part of companies such as GEICO insurance, General Re, Fruit of the Loom, Acme Brick, Ben Bridge and Helzberg jewelers, Dairy Queen, Justin Boots, NetJets, Star Furniture (these are major major everyday household names in the U.S.)...also significant stakes in Coca Cola, Kraft, Moodys, Wells Fargo.

So for all of those holdings of profitable companies, Berkshire doesn't pay dividends. But shares of BRK A are trading at $121,000 a share. (Brk B, the shares with no voting rights are $80 a share, but still). Why are these stocks worth these huge amounts of money if they don't pay dividends? Because investors know that the company is going to reinvest its profits into more profitable acquisitions. The company has value because the value of its assets are huge, and that if they decided to start paying dividends, they could certainly do so and pay them well. Shareholders want to invest in good, strong companies. They've decided that Berkshire can invest those dollars and deliver strong growth and make smart decisions with the money so they reward that with a higher stock price.

Growing companies such as Facebook make better use of their revenue by reinvesting it back into the company instead of paying it out to shareholders. Investors reward this behavior with higher stock prices. You wouldn't want a company like Facebook to immediately start paying out all of its profits in dividends - there would be nothing left to grow the company with. It would stagnate and may even start operating at a loss. Then you'd have no dividends and no chances for growth. A lose/lose.

Now if a company reduces it's dividend, or stops paying one altogether....that could be a sign of trouble and is a whole other discussion.

Hope this sheds some light on why dividends are not the only measure of a stock's worth.

I thought when a company's dividends starts to rise to those 'too good to be true' payout percentages it too was a possible indicator it might be in trouble soon.

[AVGWarhawk]

Originally Posted by mookiemookie

Still not as expensive as LinkedIn and Groupon...those are trading at a price/earnings ratio of around 152 and 67, respectively. They make Facebook's 58 look like a bargain.

I wouldn't buy either one of those stocks either...you wanna talk about a short shelf life, it's Groupon who makes screwing people and burning bridges its business model and LinkedIn, where I know no one who actually uses it.

The 2002 .com crash is enough for me to realize offerings such as FB should be avoided.

[Betonov]

Here's my conspiracy theory on this.
I bet fat cats were counting on the FB hype to drive up the stocks by massive buying by the small investors and then sell them when they rose ten fold. But something didn't go as planned.

[mookiemookie]

Originally Posted by Rockstar

I thought when a company's dividends starts to rise to those 'too good to be true' payout percentages it too was a possible indicator it might be in trouble soon.

That's true also. If a company is paying out too high of a dividend, it could be a sign that they're trying to lure in people to bump up the stock price.

[AVGWarhawk]

Originally Posted by Betonov

Here's my conspiracy theory on this.
I bet fat cats were counting on the FB hype to drive up the stocks by massive buying by the small investors and then sell them when they rose ten fold. But something didn't go as planned.

Media hype.

[Skybird]

Originally Posted by Neal Stevens

FB's value is their userbase, the platforms they create, and their acceptance as the king of repeat visitors. They essentially have all the land alongside the information highway and plenty of companies want to erect billboards on this land. That's their value, and as long as FB manages this well, they will make money. Real money, not abstract

No. Think it to the end. I admit, it is a very long chain, but still - try to think it to the end. Facebook produces nothing and creates nothing. No real value it creates at all, and the value (in the meaning of money) now spend for its shares -ideally - would represent the monetarian value of some other real assets: products, land, anything. Which means the money representing real values (the latter meaning) noiw suddenly is sucked up by something that represents no real values. In other words real assets get annihilated to value up unreal, non-real assets (FB). The ral value has not been increased, but to compensate the loss of money representing real assets, new money gets printed and brought into circulation, with inflation and all the rattail of unwanted follow-onb effects. So: while the buyer of FB shares may or may not make a short-termed gain when buying and selling FB shares, there still is a devaluing taking place that is absorb and compensated by the whole and complete system. It is a an intrinisc design flaw that temporary money theory and economc "theories" cannot evade, tried to solve and so far completzely have failed to solve, since centuries. And since as long it creates one cultural fall, one economic collapse after the other.

Economic theory even has a special term for it and recognises it as un unsolvable problem, but for the present moment the term just does not come to my mind.

If you think now that it is a very basic problem for any capitalistic monetarian system in general, than you are right. It is. That'S why capitalists tend to act as if it did not exist.

With the known results that hit civilisation every couple of time cycles. Provloem is that frequency and amplitude of such problems are accelerating by several factors in modern time, speeded up by the increased pace of modern industrial societies.

I grant you your monetarian win if your FB buys turn out to be profitable in the longer run. It's just that you have not formed and that FAB has not formed up additonal real value when that happens. A cost equivalent to your gain, and then plus X, has been also created, the price is higher than your gain, and even if the whole system and all the others swallow it, it nevertheless adds to the many other individual gains that come at a equivalent cost + X. Somebody has to pay for it, and it could be any part of the global system and communities.

So do not be surprised about the next econiomic-finacial crashdown. It is just a question of time. Profits like yours - drive the process of frequent collapses, since they keep the whole system running from one spike to the next in the race for "eternal growth" - instead of trying to maintain a dynamic balance that keeps things in a state of slightly fluctuating stability and size of human civilisdation tailored to what can be supported by this stable balance. That would be what "Nachhaltiugkeit" really means. We are lightyears away from that. And that is why I am pessimistic about human global civilisation.

From nothing comes nothing, lead does not turn into gold. It is so easy a fact to understand, but greed seems to blind people over it.

[Jimbuna]

Originally Posted by Betonov

Here's my conspiracy theory on this.
I bet fat cats were counting on the FB hype to drive up the stocks by massive buying by the small investors and then sell them when they rose ten fold. But something didn't go as planned.

Don't believe everything you read in comics

[mookiemookie]

Sky, with all due respect, you're way off the mark here.

Originally Posted by Skybird

No. Think it to the end. I admit, it is a very long chain, but still - try to think it to the end. Facebook produces nothing and creates nothing.

It absolutely creates a service and has produced a social media platform. In your world, only companies that manufacture tangible items would have any value. What about accounting firms? They don't produce anything. Advertising, financial services, insurance, travel? None of them produce anything at the end of the day. Are you going to argue that companies such as Norwegian Cruise lines and Deloitte and Touche are worthless? That's absolutely absurd.

No real value it creates at all, and the value (in the meaning of money) now spend for its shares -ideally - would represent the monetarian value of some other real assets: products, land, anything.

What about the value of the eyes of the 800 million users that it has? You can argue about what exactly the value of that is, but you have to admit it does have value. Advertisers can't advertise without an audience to advertise to. Facebook has that audience.