Recently, the Facebook IPO managed to become one of the biggest flops in recent stock history, and for many people, it’s a surprise. People have lost millions on Facebook since it opened last week. There should be a moral in there, right? Well, actually there are a couple…
Do not ever put all your eggs into one basket…diversify your savings and investments.
Somewhere out there, there is a poor individual who has just lost about 18% of their total stock portfolio’s worth because their entire portfolio was stocked with Facebook. It’s easy to believe that “Facebook is infallible,” but the fact is that history has proven that even the unsinkable can sink. Don’t believe it? Look at the Titanic.
Hype is not always an investor’s friend.
When you are hearing a lot about how amazing something is going to be, prepare to be underwhelmed. Things are called overhyped for a reason, and hype often raises a stock’s value beyond what it’s worth.
Don’t invest in anything that you morally object to.
It was this moral lesson that kept Warren Buffett from investing in this giant IPO. Everyone was shocked when they heard that he wouldn’t invest in Facebook, simply because he feels uncomfortable with the way that it took away customers’ privacy rights. Others who felt and acted the same way saved themselves some money.
Wait for stock to mature.
A lot of the issues that Facebook had is that it was not given the time to mature to a normal price, or at least a reasonable one for the consumer demand. It’s best not to invest in a brand-new IPO, especially if it’s hyped. Let the price settle a little bit before you call up your stock broker.
Even so-called “no risk” stocks have their risks.
This lesson is a variant of #1, but it’s worth repeating for those who are new to the world of personal finance. Investing in stocks in order to grow your wealth comes with a certain amount of risk. You are going to have to invest at your own risk. If you want to make sure that you are never in hot water (financially), it’s important to remember that you should never invest in more than what you could afford to lose – even if it seems like it just HAS to work.