Hedge Funder Who Bet $100 Million On Facebook IPO Is Furious | Hacker News Reader

Hedge Funder Who Bet $100 Million On Facebook IPO Is Furious

finance.yahoo.com

125 pointsxtiy121 comments

I love this story on so many levels.

Firstly there is the irony of a "blue collar hedge fund manager"

There's the fact the lack of an IPO bump means Facebook equity holders are the people who made money out of it, instead of the investment banks buying at the opening and hoping to sell at the bump price.

Then there's the whole "HN thinks Facebook is worthless and has the satisfaction of seeing the stock drop on the opening day." thing. Now it turns out all the self-congratulation over people's "insightful analysis" was probably misplaced - Facebook may or may not be overvalued, but the stock price probably doesn't reflect the market consensus yet.

Finally, in an ironic twist Shakespeare would have been proud of it turns out that it was probably the NASDAQ's computer system that meant Facebook missed an IPO bump. Silicon Valley loves talking about how Wall St over-hyped IPOs during the dot-com bubble and blaming it for the lack of a significant IPO exit strategy since. Now it was a computer system that failed Silicon Valley's great hope of reigniting the IPO market.

As someone who's worked in and with a lot of Hedge Funds, he's not a Hedge Fund Manager: he's a trader.

What that means in general is that while he's going to be very well paid w.r.t. the rest of society, he's not the guy actually doing the full hedge fund portfolio management, he's a guy executing trades on behalf of that portfolio manager.

The PM is the guy who makes the massive, massive payout, not the trader operating on his instructions.

Yes, I do understand that, and I guess I misspoke when I said "manager" rather than "trader". It doesn't detract from the irony though.

(Fan of your blog, and following OpenGamma's progress, BTW)

This particular man presumably understands class as the English do - that in many cases, it's as much (or more) to do with your upbringing and background as it is to do with your current social status.

Perhaps "blue collar" isn't quite the term for this, though. I can't imagine there are many blue collar workers in a hedge fund. Maybe the cleaners...

I guess he's trying to say that he feels like he shouldn't be there, a pretender to the throne. Happens a lot when you are working class and join a department/division that attracts people from more affluent families.

I'd interpret this as someone with high income/low net worth.

Think someone from a random middle class background that got good grades an above average public college. Basically, if he fucks up, he's bankrupt.

The WASPy types with Harvard MBA's benefit from their social safety net.

You should adapt this for the stage!

A sequel to the Social Network?

> the investment banks buying at the opening and hoping to sell at the bump price.

The IBs also parcel out shares to favored clients so they can get the bump. Favored clients is shorthand for "folks who can get us more biz in the future", such as folks whose companies are likely to go public in the future....

I bought Facebook with a limit order when it went on sale to the general public last Friday, and I can confirm it was a terrible experience. Here's basically what happened:

I put in a limit order through tdameritrade the night before with a max price of $44. I'm in front of the computer that morning to watch my order when the IPO starts. The price spikes up to 45, then treads around low 40s. I refresh my account. My limit order has not gone through. I wait AN HOUR. Still, it has not gone through so I cancel it. Now it says, "Pending Cancellation." It remains "Pending Cancellation" for over an hour, so I try to call tdameritrade, but their lines are completely backed up with calls. Finally, the system suddenly reports that my order was accepted and I bought Facebook at 42. It's only an hour from market close by the time I see this. What this meant for me and most everyone else was that I was locked out of the market for the first 2 hours after IPO and my assets were frozen. I could neither buy nor sell. I don't think we can really know what the impact of this was on the market, but it certainly didn't instill short term confidence in the Facebook IPO and I think it definitely decreased the volume on the stock.

I'm not going to defend everything the guy said, but I do believe that NASDAQ botched the IPO badly and it may be a few months before we know what the market really values Facebook at. There may even be permanent damage done to Facebook's reputation.

There may even be permanent damage done to Facebook's reputation.

Any permanent damage done to Facebook's reputation will purely be because they overvalued the IPO, overstated earnings, bought out other internet companies at inflated valuations pre-IPO, and burned those who bought at the inflated initial valuation.

As to whether the trading system damaged confidence in Facebook - it's not always possible to get the deal you want on a stock-market, and anyone placing a limit order should know that they might get a vastly different price than the one they expected - there are disclaimers in trading systems specifically for this situation. Trading is stopped all the time by circuit breakers (see Zynga that same day for example), depends on both willing buyers and sellers at a given price, and of course depends on the trading systems not going down for whatever reason. If you're buying as a long term investment of a stock that you believe in this won't affect you. If you're speculating, particularly short-term, you should recognise that the casino is rigged against small investors - the stock market is not, and never will be, rational, fair, or efficient; it's just the least worst option we have. However I don't believe that lack of access to the stock or prices on the first day of trading has anything to do with the current price ($31 last time I looked) - that's just down to a bubble deflating and confidence evaporating as people start asking questions about the true valuation.

Frankly I think this sort of talk of the technical issues is really a way of avoiding talking about why people bought Facebook at the initial irrational PE/price which (IMHO) has farther to fall before it becomes a reasonable valuation based on their projected earnings. That's the real issue here, but one which raises hard questions about the very high valuation of many social media companies like Instagram, Facebook etc.

We're not talking about retail investors getting fleeced by big traders. We're talking about $100M positions held by professional traders who were told to go pound sand by the exchange.

The questionable nature of many aspects of Facebook's business are not new -- an IPO investment in Facebook is by it's nature a speculative investment in the future. So was Netscape, the company that started the dotcom boom.

But unlike the good old days in the 90's, today we find ourselves in a new world where for-profit exchanges who handle billions of trades a day suddenly cannot handle an IPO. You have institutional investors stuck with seemingly illiquid positions in Facebook panicking to close positions poisoning the well and creating an atmosphere of ambiguity and fear.

You can't roll out the "investment is a long term endeavor" bunkum when the entire business model of NASDAQ-OMX and NYSE-EuroNext is now to operate a liquid market. The NASDAQ utterly and completely failed to operate the market correctly, and traders who expect to be able to trade quickly were hosed. Facebook, the traders, and the retail investor all suffered because of NASDAQ's incompetence.

anyone placing a limit order should know that they might get a vastly different price than the one they expected

If you place a limit order at (e.g.) $100, your order should be filled at or below $100 - no exceptions. The order will stay around until it is either filled, manually cancelled, or expires (at end of day or at a prescribed time).

A market order can be filled at an arbitrary price because you are communicating that you are willing to cross the bid-ask spread and meet the market price, even if it's moving rapidly.

Sorry this wasn't very clear. I meant that you might not get what you expected (though it will conform to the rule you set, if it completes). Stocks can be very volatile and a limit order only controls movement one way, so it doesn't protect you from (say) a huge drop in stock price just after your order.

What does what happens after your order is filled have to do with your limit order execution price?

If you want protection from price decreases after a buy, also put in a stop order (which will turn into a market order) or a stop limit order (which ensures execution at the specified limit price) but which may not execute if the price movement is highly volatile.

That makes sense.

You're absolutely right that there's nothing to protect you from downside if your (long) limit order price gets hit prior to a major nose dive in the price.

(Short sale equivalent: if your short limit order gets hit prior to a major rise in the price)

I don't generally disagree with what you said, and I'm largely just taking an opportunity to go on a rant.

I have to ask -- is the stock market system really "the least worst option we have"? From an interpretation of "have" being "that is implemented and running", sure, but that's just tautological. It seems easy to conjure up systems where speculation isn't rewarded like this[1]. It just tends to mean no more instant-million or billionaires made out of people who run profitable businesses.

Recall that investment was initially about sharing profit in exchange for the funds to grow a business. Part-ownership. But we made those ownable pieces sellable, and people became able to make more money by selling little pieces of companies than by holding onto them and realizing profit; the system has evolved to grease those wheels.

If we were collectively prepared to be a little less greedy and insane, the majority of this risk would go away. We don't have to trade speculatively on future expectations of the value of the ability to sell the right to take part in a company's profits. The world could exist without stock markets, and it just means that a lot of smart people might be working on real problems instead of shuffling money. That world would look very similar to ours, except that absurd fortunes may not be come by so easily.

[1] Quick ideas: Stock ownership is non-transferable, or Stock-ownership is limited-term, or Stock ownership is limited yield, or Stock ownership is transferable after a fixed period. These could favour the rich and those with knowledge of the system, so perhaps provisions about sales would be required, "X% made available for individual buyers of less than Y value" or something. Pretty much any system which removes the notion of a real time market based entirely around selling a company's stock seems to fix the problem. It appears to me that there are a myriad less worse systems, judged by the metric of how many people are injured by the system, and how badly.

Making investment less illiquid greatly increases the cost of capital, for a lot of reasons. It means you can't act on information that comes to light after the initial purchase. It also means you can't liquidate if an alternative, but better, investment comes along later (which increases the real option value you're losing by making any given investment.) Increased cost of capital means less investment, less growth, less innovation.

I'm not saying the current system is perfect, and I agree that the current system draws a disproportionate amount of talent out of the pool (although I'd argue that's mostly unrelated to the market itself). But going to a less-liquid, less-aggressively traded capital market would likely be a step backwards for everyone. If having the occasional minor clusterf..k like what happened with the FB IPO (which is still tiny compared to the "flash crash" last year) is the cost of the current system... it seems fine to me.

It is a cost/benefit like anything else. Imagine a market where a position must be held for at least one week.

Sure, there is some efficiency in capital allocation lost but how much of a cost is that really? As I understand it its a loss inasmuch as daily stock price fluctuations reflect the actual underlying of a company: not much.

What do you have on the benefit side? For one thing, you won't have the flood of people betting on whether or not Facebook will "pop."

I was just stating what happened. Sure, I don't have a problem stating why I bought it at on IPO day at 100 p/e. I bought a small stake in my retirement fund because I believe Facebook will achieve beyond 10x their current earnings in the long run and I don't think anyone can predict the best time to buy this stock with the hype around it. I plan on checking the stock price once a year not once an hour.

"anyone placing a limit order should know that they might get a vastly different price than the one they expected"

I don't think you understand limit orders.

http://www.sec.gov/answers/limit.htm

I think you misunderstood his comment, though admittedly the word "expected" was probably unclear. He said "might". In other words, if the market price is $38 and you place a limit order at $40, you may get $38, you may get $39, you may get $40.

So if the price is moving (upward) quickly, you will get a price in the range you implicitly specified, but you may not get the price you had hoped for.

I dont think that long (buy) limit orders are ever meant to be used that way, you would place a long limit order below the market price and it usually ends up being executed at that price even if the stock nose dives a lot more

I had a similar experience, except I put my order in at 11 and was able to successfully cancel it at 12:30 as the order queue was processed. It took 20 minutes to process the cancellation, which Ameritrade can typcially do in less than a second.

I think you missed the subtext of the story: You got took.

Lots of shares got dumped on the muppets in the morning, they're only beginning to figure it out.

"Anonymous Hedge Fund Manager: No doubt. But this should have been a blockbuster. This should have traded to $60 or $70. This should have launched a wave of tech IPOs."

I think Facebook just deflated the tech IPO bubble for a year or so. No average Joe is going to invest, because, "Well fuck, if Facebook didn't explode, why would any other new tech company? No thanks." The bubble is still there, but it isn't looking like it will be rapidly expanding like people expected it to after the fb IPO.

I think it's longer than a year. It'll take something really huge to overcome "Well, if Facebook couldn't break out, who can?"

That will ripple back through all investment phases since the ipo is the dream payoff day for many investment rounds.

I think it's the kind of attenuation that the market needs right now because it basically discourages investors that buy in based on hype instead of intrinsic value.

I agree with you. For all the startups that wanted to be the "Facebook of X"... if Facebook couldn't do it, why could they?

Mos' def. They now have a reason to start looking at a revenue sources that aren't based on ads.

Every time I hear about a startup trying to shoe in an ad-based business model where you could make money selling directly or via high value intent-based referral fees to complementary businesses I cringe a bit. A lot of the time ads as a revenue stream are a total cop out that demonstrate a total lack of business sense an ability to spot value.

Google is successful in ads because they are a generalist intent capture platform. Unless your business also happens to capture generalist intent, you should be thinking about referral revenue based on focused intents.

I just thought we learned years ago that the ago model really wasn't a good one.

Facebook of B2B durable goods might be a good one to get it on.

Is there really any meaning left in the term bubble if a bubble can deflate?

Yeah. Air keeps getting pumped in. It's unlikely that the Facebook IPO not blowing up on the first day will be enough to let out all the air of the bubble or at least let it out faster than it is getting put in. The truth is that the market for all other types of equity and debt based securities is pretty shit right now and that tech startups are relatively attractive psychologically to investors because they provide hope and the dream of a better future. Most other investment types involve a lot more cold and calculating decisions and don't benefit from irrational investment behaviors.

I understand, but it seems to me that bubble used to mean something more than just overvaluation. Specifically unsustained self fulfilling growth followed by a pop.

In terms of inflating/deflating, then calling it a balloon might be more apt. Generally bubbles don't even inflate they just exist or pop.

Sounds like you've never seen a soap bubble circus act...

This guy is a moron. Anybody who believes the stock would be at $70 if "the market" worked better doesn't understand how markets work in theory or practice. If there are people who really believe the stock is worth $70, there would have been buyers the past two days. Expecting "hype" around the IPO to support ONE HUNDRED BILLION dollars of extra valuation is beyond stupid.

There very well may have been buyers on Friday who thought the stock was worth $70. If the market had been able to handle the volume, then we may very well be seeing FB at $70 today. However, since we know that the market couldn't handle the volume, it most certainly did affect the share price on Friday. Now, you let people sit and think about this over the weekend and they may have different feelings about that supposed $70 valuation.

Next, if you assume his story about selling on Monday was true, you have additional downward pressure put on FB as a result of NASDAQ itself. So much so that it closes at $34, eroding everyone's confidence in the $70 valuation that they had in their minds on Friday.

Markets only work if they operate efficiently (can handle the volume). When they don't work efficiently, they become harder to predict. And if an investor can't even be sure of what their position is, they can't participate in the market at all. It isn't at all out of the question that glitches in NASDAQ could have caused FB shares to plumet. It most certainly took away any possibility of an IPO bump.

The real question this beings up is what did NASDAQ know, and when did they know it. If they knew their system wasn't going to be able to handle the volume, as bad as that might have been for them, they should have aborted the IPO (if that's at all possible).

Well, honestly we'll never know for sure, but if a weekend of "thinking it over" cuts the price in half, did it really deserve the $70 valuation? After the hype, people are going to think it over at some point, right? Maybe it's better that it happened right off the bat.

> Well, honestly we'll never know for sure, but if a weekend of "thinking it over" cuts the price in half, did it really deserve the $70 valuation?

You are confusing "should" with "is". Don't do that.

During the dot-com bubble there were IPOs where the P/E was far beyond 100. So it isn't totally crazy to think the market could whip people into a frenzy over the idea that 'they are getting in on the ground floor of the next google' What is crazy is to think that NASDAQ hasn't fixed it by now. If there were a lot of people out there who wanted to get in on the next big thing they would have put in market orders and those orders would have been filled by now.

My opinion is that if people at stock exchanges thought things over for two days a lot of things would be different...

You don't get a valuation because you "deserve" it. You get it because that's the highest price someone is willing to pay, and someone is willing to sell to them at that level. A day-trader doesn't care if that's connected to the fundamentals of the business - they're just trying to play the rise and fall.

Using words like "moron" is pretty strong. There are a large number of historical precedents to back up that belief.

Ignoring well-known examples like Amazon (which even today trades well above where it "should"[1]), there are other examples like "The Globe", which had a first-day gain of 249%[2]

More recently, Splunk popped 83%[3].

He addressed the there would have been buyers the past two days thing, too: It never stood a shot. If there was any enthusiasm for this deal, that got wiped out. Think about a guy who was going to put five grand on this. You go to Vegas and put $5,000 on the roulette wheel and it breaks, it's like, hold on, I'm not going to do that. Suddenly you're like this is Wall Street and I hate Wall Street.

[1] http://finance.yahoo.com/q?s=AMZN - AMZN has a P/E ratio of 177. Compare that to EBAY: 15, GOOG: 18

[2] http://news.cnet.com/2100-1023-217913.html

[3] http://online.wsj.com/article/BT-CO-20120419-713258.html

I am imagining this "hedge fund manager" as some guy who had a fair amount of wealth - but a greater, wealthier, social network. He spent some time pulling from this network to develop a fund, which he would manage to make all his friends rich, himself even richer.

He has been frothing for this opportunity, ever since he missed the Google boat. At the time of the goog ipo, he was a lowly broker with little funds to leverage.

Since then he has been viciously ambitious. He has built a name for himself and a powerful, if flawed, circle of acquaintances.

He was successful in frothing up his circle, convincing them that he could make an FB focused super fund and make them a killing!

He gathered up $200MM from his network and put a crazy bet on the stock.

He lost - all his credibility gone, a loss which was thought to be a sure thing. He is ruined!

Especially since now that the loss is here - it will be revealed that he committed many millions to purchases on this expected cash cow!

His bills are due, and he owes $30MM TOMORROW for everything he used funds from his network's input to pre-buy!

HE IS FUCKED!

But, he has a really nice yacht to attempt to flee to Bermuda on...

My favourite part was when the hedge fund manager called himself "blue collar". I couldn't care about the rest, boo hoo there were technical issues, NASDAQ had a clause covering them in the event of technical issues and Facebook stock didn't balloon into the $60 or $70 per share price range. I don't feel one ounce of sympathy for anyone who can freely gamble away $100M then have the audacity to complain about it, if the situation were reversed the hedge fund manager wouldn't care if I lost out because I invested $100M into Facebook stock either.

Don't get me started on the fact this disillusioned guy thinks the stock should have been in the $70+ range. It doesn't sound like the guy should be handling money full stop, he obviously has a lack of understanding when it comes to the stock market.

Read the article. He is complaining about how the casino operated, not how he bet. One of the most crucial piecing of information in professional trading is knowing your exact risk position. NASDAQ apparently was unable to confirm whether trades were "done" or not. Having a uncertain $100mm exposure to something really scares a trader, since he cannot hedge it. This is the kind of situation where telephone hand pieces get snapped in half, and holes get punches through LCD screens. The flash crash a few years ago created a similar situation where the exchanges decided to cancel certain trades at their own discretion.

NASDAQ really botched the IPO. Trading was supposed to open at 11am, and it appeared to me it took until 11:20am to actually start. Problems persisted even after FB opened. They won the listing over the NYSE on the promise this sort of thing would not happen. Mega IPOs always seem to have a lot of drama. GOOG had a lot of stupidity with some interview Larry or Sergey did with Playboy, and I think a few other issues. Finally FB got to the end of the long road to going public.

> "He is complaining about how the casino operated, not how he bet."

This is exactly right.

I have no sympathy for a gambler who gets beat because he made the wrong read or the wrong play. I have no sympathy for a trader who loses money because he was wrong about the market.

But when a gambler gets beat because the casino kept misdealing the cards, or a trader loses big money because the exchange botched the trade, he has every right to complain. The system is supposed to operate according to certain rules, which failed in this case and cost some people a lot of money. Maybe they would've lost the money anyway, but that's something that should be determined by the market, not by a NASDAQ glitch.

As the article points out, technical glitches are covered in the rules. When you invest you accept these rules, if the hedge fund manager has a problem with the rules then he should not be investing. Therefore no rules were broken as the article points out, it's a stock exchange they aren't dumb they know how to cover their bases (they're bankers after all). He isn't the only one affected by this situation.

The bottom line is he would have lost money regardless of NASDAQ's handling of the situation, Facebook stock flopped. This guy needs to cut his losses and take it like a man, he isn't the only one who invested in Facebook stock and lost out, I wouldn't rule out others losing larger sums of money too ashamed to even anonymously come forward.

It might sound spiteful, but it's life. Unexpected things happen like these and there's nothing that can be done. I'm sure the SEC will be investigating everything shortly anyway, so we'll see what happens (if any action is taken, which is possible).

If NASDAQ knew there were problems but continued anyway that may actually not be covered in the rules.

Well if that is the case (and at present everything is speculation) then the SEC will find out one way or another I hope, because if NASDAQ knowingly knew shiz was about to go down and didn't give a warning to investors, then the SEC will hopefully be all over NASDAQ like prisoners on a new inmate in San Quentin State Prison.

Even gamblers are subject to operational risk. If an earthquake knocks over your stack of chips, poopers...

To think fb would have popped to 70 had it not been for a glitch is manufactured lunacy.

To plenty of us in the tech field a successful Facebook IPO would have opened up a path for other tech business to IPO in the near term. On top of that a successful IPO would have opened up some funding in our hacker space (Paypal Mafia/Google Mafia..etc). We want them to be successful.

Kind of true, but I'm wondering if there is more to be gained in Silicon Valley by deflating and delaying the pop of the bubble a year or longer or by prompting a string of tech IPOs that will line the pockets of engineers that can fund many startups several years later after the pop. As someone working on a startup now and looking to move from bootstrapped stage to seed stage, I'd rather see the bubble deflate now. Lining the pockets of a Facebook Mafia and several other "mafias" doesn't do me and others like me a whole lot of good in the near to medium term.

Seems to me it's a very good thing none of that happened. The VC scene was already pretty damn irrational and dysfuntional, and in sore need of some unpleasant reality injection.

The hedge fund has $100MM, that doesn't mean he has $100MM. He's managing other people's money, he's not "freely gambling" with it.

Just to add to this comment. $100MM at 2% management fees, leaves $2MM for expenses (audit, legal, accounting), officers and staff. He probably makes most of his annual take in a performance bonus, which this 'screw up' probably reduced.

FWIW, my favorite part showing how these short term guys think: "we heard rumors there was a market in Europe for $70/share" fast forward to "this thing should have been trading in the $60 to $70 range." Based on a rumor from another continent.

The interesting allegation here is that NASDAQ required traders to dump a bunch of stock on Monday morning, which depressed the price artificially.

We'll never know the truth of it, but if it happened it's unfortunate.

There has to be some sweet, sweet irony in the idea being explored that high-frequency traders may have caused the NASDAQ breakage.

From an HN post earlier today (http://www.nanex.net/aqck/3099.html):

"...In brief, the problem was that the system took two extra milliseconds to calculate the opening price. Because of a decision before to allow continuous order placement during IPOs, cancellations kept “fitting in between the raindrops”, in the words of Bob Greifeld, Nasdaq’s chief executive, in the five milliseconds it was taking to determine a price."

I still don't understand why Facebook has such an overblown valuation to begin with. The entire business is a house of cards based on the possibility that it might make someone else some money someday. Sure, there are some vultures like Zynga that make out like bandits preying on people with addictive personalities who shell out cash, and I'm sure there are a few success stories regarding successful social media advertizing campaigns, but I count the former as resulting from a lack of morals and the latter as unpredictable anomalies that happened to tweak something in the hivemind.

I don't perceive any value in Facebook. It is an enormous time sink with rapidly diminishing returns on time investment, and I feel it is only a matter of time before the average user experience is more noise than signal. As soon as that point hits, I can easily see Facebook going the way of MySpace and its ilk. Facebook has some amazing talent on their team, so maybe someone there can see a way forward, but as far as I can tell the end game for all social <insert something here>s appears to be an exodus to a more specialized or sparsely populated network.

As an outsider my opinion is of limited utility, but I also think that Facebook is a poison on the tech industry as a whole. I don't see that they have created anything innovative, useful, or even substantial aside from this enormous echo chamber. I'm very glad to see that Wall Street isn't gorging on this IPO, even if it was an accidental fuckup that has spoiled the appetite. With any luck, this flop will convince investors to put their money onto things that create something useful.

If anyone has counterpoints, please post them. I write this in frustration, since I just really don't see where this "105 billion" valuation is coming from. Where is the potential in Facebook? What is being produced? Why should I give a damn?

- They missed the boat if they are trying to compete with the Google advertizing empire, so that can't be it.

- They admit that they aren't having the success they hoped for in the mobile arena.

- The only thing going for it is that it is the single largest repository on information about individuals, but that information cannot be ethically or legally used to its full utility, and most of it is white noise anyhow.

- The company has repeatedly shown that it doesn't give a damn about its users or small developers.

What makes this a sound investment?

Facebook has the biggest and most metadata rich direct marketing list ever created?

Facebook has not even begun to do the things they could with the knowledge they collect every day. In theory you should be able to go to one of Facebook's ad sales pages and order an ad that will be shown exactly three times to every left-handed piano player in Ohio. That you can't do that in the next ten minutes means that Facebook is leaving money on the table. They don't need to compete with Google, they need to compete with Experian and Transunion, or they need to come up with a way to provide a compelling "We manage your online data for you." offering that a majority of their users would pay for.

Facebook is, right now in a fairly enviable position; there are many things that they could potentially become, they are not hamstrung by the need to keep a cash cow fed and they have enough resources to try multiple experiments at scale.

I wouldn't count them out as a driving force on the web just yet.

I think you overstate the amount of useful data Facebook has on people. Just to take your example: Facebook may very well know which state I live in, but they definitely don't know whether I'm left handed, for example.

On the other hand, Google might very well know this, if, say, I have searched for left handed golf clubs. Amazon would also know this, if I have bought said clubs through them. Google and Amazon almost certainly also know which state I live in (hell Google might know exactly where I am at any given moment if I have an Android phone).

So really I don't think Facebook is in an enviable position at all compared to companies like Amazon and Google.

"[...] they need to come up with a way to provide a compelling "We manage your online data for you." offering that a majority of their users would pay for"

What data? Dropbox and now Google back up all your files and documents, for FREE, now! How could they compete with this with a free service, let alone a paid one?

And from a privacy standpoint people trust Facebook far less than Google or Dropbox. There is an implicit assumption that anything shared with Facebook will some way or another be shared with one's Facebook friends. (People aren't ignorant of the way Facebook has tried to trick them into accepting more liberal privacy settings over the years.) Facebook would have to work very very hard to change this perception before a data storage service would ever take off.

As an addendum to your points, I do not have a Facebook account, and since deleting mine I've not even wanted one. Google, Amazon, Dropbox, and a few other services are compelling enough that unless they make serious errors, I will continue using their product. Facebook just had to change their privacy policy before I was finally annoyed enough to give them the boot.

ok facebook may not know if your left handed, unless your in a left handed appreciation group, but think about all the information facebook does collect on you.

where you or others check in, likes, people you chat with, what you chat about, who tags you in posts and photos and who your with, not to mention all the tracking facebook does with other sites

Well, it remains to be seen whether that data can actually generate revenue. I personally don't think it has much potential, at least not compared to the extremely specific data Google has on everyone, or the purchasing data that Amazon possesses.

Also, I just don't think people use Facebook the way you describe. Most people I know don't "check in" wherever they go, nor do they "like" different brands (except for ones that make them do so in order to be eligible for a contest or something sketchy like that--I've definitely seen that before). But people do search on Google for anything and everything, including purchasing decisions. And of course people do make real purchases on Amazon.

The widgets that Facebook litters over the web which it can use to track user's browsing habits may be the wild card here, but I'm still skeptical that this has that much value compared to Google's search data. Plus those widgets seem to be mostly limited to news sites anyway.

What can they sell me based on the fact that I just liked someones wedding photo / baby picture / witty comment? I like my friends businesses and other local peoples businesses on Facebook because I want them to do well. I've never gone on to Facebook to like a business because a transaction went smoothly. I think that's weird and think my friends would too when they see it on some feed.

You're missing a point there. The information may be mostly white noise, but with that much data, even filtered by laws and ethics, statistics are powerful. You are not the customer; neither are the developers. It's Target. http://www.forbes.com/sites/kashmirhill/2012/02/16/how-targe...

I have no problem visualizing how Target is able to predict future purchases based on what items I've already bought or what items I'm browsing. I have trouble visualizing how anyone can predict future purchases based on me liking a picture of a cat or browsing through friends vacation photos. Unless they're planning on selling me cat vacations...

Even your age, sex and country is very useful to advertisers - an ad targeted at those is worth about 50x the price of one sent to a random internet user (or it was when I last worked in that industry). Facebook knows where you went to college, what your favourite movies are, and perhaps most importantly of all, who your friends are. That's huge.

They just have to correlate: people who browse cat photos at 3 am and "like" these specific ones tend to buy canned beans within the next 3 days. It doesn't have to make sense as long as they can derive correlations from it.

Well, there's another article from Blodget on this fiasco that will soon hit the front page here.

The NASDAQ snafu is one thing. A class action suit has been filed.

But there has also been a class action suit against FB, alleging securities fraud.

We don't have all the facts yet, but what we've got so far is enough to demand to know more. I think a court will agree.

Bad PR all around for the FB. FB, the business, is doomed. They already knew that. They just didn't tell you, the investor.

Maybe we should demand an ad-free FB. Advertisers are going to be pulling out anyway. And without ads, they could give us more privacy.

Poetic justice.

Where's that Like button?

What he really should have said:

"We were all betting on millions of small traders shoving $5,000 into this bubble to push the share price north of $70 so that all the large hedge funds could cash out and get rich off the backs of the average Joe. A technical malfunction prohibited us from exiting with 100% profit on intro day and now we are stuck with a bunch of shares we know are worthless. Dammit, how am I going to pay for my next summer houses? Damn you NASDAQ!"

For context, direct link to NASDAQ rule 4626:

http://nasdaq.cchwallstreet.com/nasdaq/main/nasdaq-equityrul...

EDIT: Also, "NASDAQ Equity Trader Alert #2012-21: NASDAQ Proposes Policy for Unfilled Orders in the Facebook Inc. (FB) IPO Cross":

http://www.nasdaqtrader.com/TraderNews.aspx?id=ETA2012-21

(Their website fails to work in Chrome if you click around -- alert bubble states only IE and Firefox are supported. Tsk tsk.)

This is a crummy headline, the article/interview focuses on problems with Nasdaq's systems, which is far more interesting than some trader whining about a loss (which happens every day).

I suppose as a hedge-fund manager he isn't an investor valued towards fundamentals, but if he really thinks Facebook should be valued at $60-70, then I'm not sure some NASDAQ crapping out on one day would change that. If Facebook turns out to be the next Google in terms of ever-growing profits, its stock will get to $70 (and higher) as a result anyway.

Do we need anymore proof that the concept of 'stock ownership' is irreparably broken?

Basically his entire point is that because a trading system was delaying orders for a few hours over $100 BILLION in value was potentially lost?

Yeah, that seems like a sound market with long term owners that trade because they believe in a company.. Right?

"Then it was holding at $42 for whatever reason. $42. $42. $42."

42 is the answer. He's just not asking the right question. Sorry, couldn't resist.

Given how tight and controlled the shares distribution was by Morgan Stanley, how eff-ed up the orders to NASDAQ went, and the resulting decline in value over the last few days -- basically it seems that Wall Street bankers are the ones who were screwed. All I can say is -- what goes around, comes around.

They finally did it to themselves. For all the complaints about future regulatory needs, the Street never once considered that it might actually protect someone they're interested in -- themselves. Trust in the market has never been lower, thanks to the very folks that benefit from it. Now, not only are government agencies pissed off and investigating, but the traders are going to start pointing fingers at each other.

Tsk, tsk Wall Street -- prepare to hunker down. Karma's a bitch, boys. Who knows, when it's all said and done, maybe Facebook will end up actually helping Main Street.

If he admits that it never had a shot, why did he invest in the first place?

Additionally, would we be feeling bad for Facebook if they had underpriced the IPO and the trader had made 25% profit on day one (and Facebook lost out on a potential 25% of fundraising)?

I'm glad to hear someone say this. Facebook the company did amazingly well on this transaction. A stock that pops is one that has left money on the table. FB did the opposite...

"Gambler Who Lost $100 Million on Roulette Wheel: Boy Was He Furious"

Here's my favorite part:

" The question is will NASDAQ do the right thing. They made $400 million last year and could pay out some."

what the everloving...ffuuu.. I hear whine whine whine from the 99%, and now I hear whine whine whine from a freakin hedge fund manager who BET $100m on FB. IS this the state of affairs now? Country full of WHINERS??

That's the free market! Oh wait, that only applies to when you're winning. You ask/beg/sue for relief when it goes the opposite way.

Interesting supposition, that the IPO might have gone down much differently if somehow NASDAQ had been more prepared or messed something up. But the last statement - that it could have been trading at $60 and $70, that is hard to believe.

Blue-collar? I think he means middle-class white-collar. You're not blue-collar if you're sitting at a desk in an air-conditioned office tapping at keys in a suit, even if you wish you were paid more and want to complain.

I'm gonna call fake on this.

If I would have the money I would buy it for $25 a share. Personally I don't believe it will go under this. Facebook is a good business, just not by the price people were told. I don't believe FB will grow much more. A P/E=100 ($31) is still too high. $25 corresponds to P/E=80, high enough in my opinion. I believe that one Buffet wouldn't pay more than P/E=25, around 8 bucks.. Google right now as a P/E=18, Microsoft less than 11..

"Anonymous Hedge Fund Manager" -- could be a kid in a dorm room or PM at SAC... HF Manager is an inflated title...

Yet another screw-up involving "real" money/assets and a "real, tested" financial system to add to my collection of "See, it's not just Bitcoin's youth or digital embodiment" rebuttals... I'm looking forward to seeing how all this plays out. I still think the stock price will go up past $38 over the next 6 months, but we'll see.

Why did't he buy class A shares before the IPO. Idiot.

I have a hard time drumming up sympathy for these guys. They're mad because they couldn't make a quick buck. Isn't a hedge fund just gambling? It's high time Wall St. learns that it's never a good idea to put more in the pot than you can lose.

The part that is most striking to me is that share price and a company's intrinsic value are seemingly in different galaxies. This guy is talking about decisions based on hype. I'm floored. Do these guys really trade based on public opinion?

He is complaining because he was sandbagged. He didnt know what his position was, and NASDAQ and MS both dropped the ball here.

You can vilify hedge funds till kingdom come, but it sounds here that this guy played by the rules and lost due to a circumstance that he didn't believe was fair.

If the opposite happened (price spiked) yet the same technology problems happened, you'd have a bunch of people complaining that they were over or under filled.

The complaints would not be justified if there was no confusion on his position.

What gets me is how mysterious it sounds, when there is a ton of obvious troubleshooting that should have happened... and probably did but I can't find reported anywhere.

Hedge fund places order. NASDAQ returns an order id.

Did that order show up in the market data feed?

Did they see that order get hit on the market data side?

Did they get an order accept?

Did they try to cancel?

What happened when they tried to cancel?

What actually happened? Did the orders really just get accepted and then go into a black hole?

Black hole sounds about right. Apparently NASDAQ's systems went completely quiet for 17 seconds centered around the 11:30am open of Facebook:

http://www.nanex.net/aqck/3122.html

Looks crooked as anything.

Do you think NASDAQ shut their computers down? Were automated traders crippling the system? Perhaps something else?

Problem is there's no rules. Noone got in any legal trouble over at NASDAQ. People do insider trading without getting caught. It's a rigged game.

I'd say former Nasdaq chairman Madoff got himself in a little legal trouble, though perhaps that was after he left Nasdaq.

Except that it's their rules that they're following, and with HFT those rules are generally rigged to help out the big guys. In fact, I'd be willing to bet that the system wouldn't have actually crashed if there weren't a bunch of Morgan Stanleys and the like trying to make a quick buck on day one.

You go to Vegas and put $5,000 on the roulette wheel and it breaks, it's like, hold on, I'm not going to do that.

I like this analogy. You want to play the market, fine. But if NASDAQ breaks, is that really part of the game?

If they signed a legally binding agreement, then I imagine NASDAQ breaking would be part of the game.

The contracts absolve NASDAQ of liability in calamities of this nature (my business was almost destroyed -- had to take a 250K loss -- thanks to an order entry server failure), but it doesn't make you feel better.

Having had something similar happen to me, I know how much it sucks. You accept its a possibility, but don't really believe it will happen until it does.

But then why do exchanges feel free to reverse trades after the flash crash, but not after something like this flash freeze? From a non-trader's perspective it's as if they do whatever they like.

It might look like they do whatever they like because pretty much they do whatever they like.

If you're a small fry then your broker will probably assume the risk. If you're a big guy, like it sounds like this guy is, then he should know he assumes the risk. Buying and selling in a market carries some credit/counterparty risk. NASDAQ probably handled this poorly (Seriously, did they ask traders to be honest and self-report their trade executions as part of the official books of record?!?!), but this guy's fund will be on the hook until it all gets settled out if it does at all.

EBay's an open market with buyers and sellers and people just take it for granted they'll get screwed by EBay/PayPal at some point in their lives. I understand that there is probably more at stake in the NASDAQ than on EBay, but their Risk/Compliance department should have advised the principles of his fund to hold some capital off to the side for a situation like this.

It depends on the agreement, and whether the NASDAQ guys could reasonably have known there was going to be trouble. I'm pretty sure that agreement only covers unforeseen problems, so if they knew something was funky, they might be liable for a lot more than $3MM.

In fact, if an actual casino fucked up due to technical glitches, I think legally it's on them to fix it.

Nope.Vegas law says casinos are not liable for technical errors. There have been cases of slot machines setting off the giant "You Win Millions" buzzer but not getting it.

But if the roulette wheel is broken so that the ball occasionally flies off, and the casino just says "ok, everyone loses" I don't think that would stand.

True. But in this analogy, I hardly think you can claim "everyone loses".

I'm curious; what's to prevent a casino from saying that prizes were actually technical errors whenever it was convenient to them?

If the casino believes that the machine has been corrupted or is broken, they call in the state's gaming commission which is supposed to act as an independent technical 3rd party. The machine is inspected and it's code compared to a known registered checksum.

Casinos can say "technical error!", but there is an advocate for the player in this situation. Usually. (Avoid Indian casinos in the USA for this reason).

Yeah, these guys are funny. One day they agressivly take over companies. And the other day, as it happened with VW stock in Germany, the sue others when their gambles don't work.

What I remeber from the VW stock story happened back then was the following. Porsche tried to take over VW, so they bought every stock they could. Hedge funds bet on falling values and sold VW stock short. Since Porsche continued buying, stock prices raised. Then the hedge funds had to buy the stock short selled, values raised further (up to 1k € if I remeber well). The result were funds obliged to buy stock for almost 1K they sold earlier for a fracture of that.

And after that they sued Porsche for stock manipulation. Yes, these guys are funny. And yes, that FBs IPO stumbled over a computer system is ironic!

VM was a very special case, since most free floating stock is non-voting (I think this has since changed); at that time only about 6% of the voting stock was free floating.

> Do these guys really trade based on public opinion?

What is the stock market if not a giant popularity contest? Real investors make deals with companies, stock buyers are just hoping to catch the right wave.

What did you really think, that those guys are magicians who can trace trends and predict the future? Some may be but the vast majority isn't. The whole notion of markets is largely based on psychology.

I have a lot of sympathy for those guys, their ability to artificially pump stock prices brings a lot of value to the economy. Anyways my heart goes out to them.

"This should have been a blockbuster."

Karma!

Not a pro investor, but can one infer that possibly FB is at an artificial discount?

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