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"'It certainly wouldn’t behoove and wouldn’t be in the shareholders’ best interest to dump the shares on the market all at once,' [Harding] said. 'I would assume that all of the investors that hold the 270 million-odd shares are probably rational, and probably realize that flooding the market with that kind of supply over such a short amount of time wouldn’t help their position.'"

This reasoning seems flawed to me: He seems to not understand that the rational choice for individuals acting independently is often not rational for the group as a whole. The Prisoner's dilemma, Bank runs etc. are all examples of how this can happen.

If everyone else is in danger of selling and pushing the price down, you're better off selling now before that happens... and of course, everyone else would reason the same way, making it a self fulfilling prophecy.

If the shareholders had some way to collaborate and agree collectively to not sell now, his statement might be correct - but I doubt this is even legal even if it was feasible.

Of course, if you're in it for the long haul, then other people's opinions of the stock price shouldn't matter: you just buy/sell facebook stock based on whether you think the future expected dividends justify the investment.

This is known as "The Tragedy of the Commons".

http://en.wikipedia.org/wiki/Tragedy_of_the_commons

Nah, the tragedy of the commons describes more specific things. Like catching all the tuna until they are extinct. This is more game theory. Pretty simple game theory, but still information/coordination related game theory.

Except there's no "shared limited resource" in this case. Just an overvalued social network.

The "shared limited resource" is the pool of buyers.

What pool of buyers?

The people who would be interested in buying FB shares.

The problem is that a lot if people bought these shares under false pretenses. Decent returns are not visible to anyone who is truthful and open minded. There are two paths in this circumstance - sell now and cut your losses by buying something that will return better, or sell later at an almost certain lower price, and lose that potential in the mean-time. If it were me, I'd cut and run now.

There weren't a lot of "false pretenses". Anyone who bought Facebook post-IPO did so with access to a lot of information that said the company wasn't worth 100 Billion dollars. There certainly wasn't a clear path to them being worth more than that any time soon (which would make holding the stock fairly pointless). Facebook needed a lot of breaks to ever get the stock above the IPO price. That was (and still is) a long-shot. The fact that people bought post-IPO stock with irrational expectations isn't a problem (at least not for anyone other than the buyers, who paid a lot to learn a valuable lesson).

The interesting problem here is what employees will decide to do. It's not obvious that Facebook stock will go up any time soon. It's probably a reasonable thing for employees to diversify their holdings (which means liquidating a large portion of their facebook stock). It will be interesting to see how individual employee decisions end up pushing the stock price.

Logic of Collective Action

https://en.wikipedia.org/wiki/The_Logic_of_Collective_Action

One could argue that holding the stock and waiting for it to come back up is the irrational response - cutting your loss seems rational to me.

There's pretty much guaranteed to be a temporary dip, because there will be some people who own facebook stock that just came out of lockup and need to sell at any price (perhaps they've just got divorced or something). Holding on for at least a couple of days until the market settles down is the rational move for everyone except those few who absolutely have to sell now.

Many large asset managers have mandates to sell their losers and cut losses, or may be window dressing before the end of the quarter and don't want to show to clients that they hold any FB stock on their book.

So that may be contributing to the selloff today

From my understanding, Facebook is not owned by a lot of institutional investors and asset managers. If you look at the 'Inst. own' metric in Google finance, it says 7%, which is fairly low. I could be misinterpreting this however? Can someone confirm this?

There's a huge volume being traded today. Who is buying?

people exiting short positions