Why I Bought Facebook Stock

After months of frenzy, Facebook went public on Friday. I bought stock. Here’s why.

THE HYPE. The last several months of media have been incredible hype. For every pro there was a con. Buy, don’t buy. The 24-hour news cycle could not have been more excited to talk about something other than politics. Rubbish. I did my homework. I payed attention to the SEC filing. I kept perspective. I looked at the leadership (sans Zuckerberg) and the banks underwriting the stock. I guessed the stock would open around $50 per share and I was willing to pay that.

THE PRICE. Mark Zuckerberg does not dictate the price per share (but he benefits from it).The banks (underwriters) do. With so much money at stake here, and learning from the history of both tech stocks (Think LinkedIn, Groupon, or Zynga) and the past few years of economic turmoil, no bank was willing to do anything stupid. Facebook opened at $38 per share. In 30 seconds, over 82 million shares were traded, yet the stock stayed between $38 and $42 all day. That means that it was priced very well. This is a great example of learning from history.

The stock price for Facebook on Friday...or the level of acceptance when Facebook changes anything on their platform. (Click to embiggen.)

THE LIMIT ORDER. I put in a limit order of $43 per share, and got it at $42. If the stock had skyrocketed beyond that before I could get in, no worries. I would have just waited for the market to smooth out and re-investigate a good price to buy it.

THE REACH. Facebook has over 900 million users, over half of which use it every day. There are two things to know here: 1) The internet ain’t going away any time soon, and 2) neither is Facebook. Facebook is going to continue to grow in reach and power.

THE GOOD LESSON FROM THE BAD AD MODEL. Earlier last week, right before Facebook hit the market, General Motors announced they were pulling their advertising from Facebook. This could have affected the overall trading for the day. I saw this as good news. With such a well-known company making news like this, it means that Facebook is still learning the perfect model for advertising. They will.

THE GAMBLE. The stock market is a gamble. Even with every market analysis platform out there, no one knows what will happen. I spent as much as I was willing to lose should the stock bust. But I don’t think it will.

Time will tell if this was a good investment.

How about you? Did you buy? Why? Why not?

[Image Credit: sfgate.com]