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It is not the responsibility of the purchaser to know information which is purposefully withheld from them. From the article

> Scott Sweet's multi-billion dollar hedge fund client flipped the stock at $42. His subsequent short made his firm its "largest profit of the year," Sweet said. There's "no way" a retail investor could have known about the lowered projections, unless he or she "had a friend at a multi-billion dollar institution," he added.

Please explain to me, when information is withheld from the purchasers and only specific clients notified as to circumstantial and meaningful changes to the state of the offering, how anyone could ever "know what you're doing?' In fact, Morgan Stanley was actively misleading investors by continuing to adjust the specifications of the offering to make it look better.

Analogy: If an automaker produced a new car which was secretly designed to become worthless (engine would fuse together) after 3 months and only told one rich people not to buy it, would that be fine? What if there come back was 'you could always open the hood and see our computer components which execute after 3 months, its not our fault you don't know what you're doing'

My understanding is that the information was not withheld from retail investors; rather, it wasn't actively disseminated to them, and the significance of the information impressed upon them.

The reduced revenue estimates were public information; I recall reading about them myself before the IPO took place. If someone had put me in charge of billions of dollars and told me to take a position on the Facebook IPO, I would have shorted the stock, as many others did.

The crux of the issue is that wealthy institutional investors had analysts at their disposal to point out the revised revenue estimates, and retail investors like Swaminathan didn't. Retail investors were ill-prepared for the IPO, and they got burned.

They're ill prepared to consume the information in the format its delivered (if it is delivered at all). Notice, the revised S-1 doesn't say the amount of the adjustment, you had to receive that from Facebook via another channel. So, it doesn't really have to do with special analyst job knowledge, it has to do with special treatment.

I mean, "actively disseminated" seems a bit generous. They call 3 institutions to let them know meanwhile individual (notice i'm intentionally not saying "retail" because thats become some sort of in-crowd, brow beating, bullshit term for shaming regular, non-hedge fund investors) are left to read smoke signals. Its not that the institutional investors "had analysts at their disposal" its that the systems is built to make sure institutional investors and hedge funds get information others don't.

You can say what you want, but the quote from the hedge fund manager seems much more clear then your opinion, and he's a domain expert who took part in the situation.

>"There's "no way" a retail investor could have known about the lowered projections, unless he or she "had a friend at a multi-billion dollar institution," he added."

The part you quote was not the only warning sign to stay away from the IPO. Just a quick search brought a whole page (published before IPO day) of reasons to stay away: http://www.zdnet.com/blog/feeds/facebook-ipo-risk-factors-an.... Regardless, big IPOs like Facebook are driven by hype, not sound financials. I'd be willing to bet that Facebook could have used 24 point type on their login page stating: "we're losing money hand over fist" and there would still be people lining up to pay $42/share when that bell rang.

Were insiders withholding information? I'm not going to argue one way or another. How do you "know what you're doing"? Start by knowing that insiders would stick it to their own grandmothers if they could get ten cents more per share. But when one's whole strategy is to hope for a first day "pop", that's playing a lottery ticket, not investing (exhibit: Zynga). For one, if one buys after the opening bell, you're not going to profit from the pop, you are the pop.

She shouldn't have taken such a large position in a single stock. As a retail investor, that is stupidity.

As a retail investor, it is your job to find someone who knows what they are doing and can teach you how to invest or manage your investments for you. After that, if you are investing over 10% of your portfolio in one stock you are asking to be broke.

Your car analogy doesn't work because there is really no way to diversify your car whereas there are plenty of ways to avoid this kind of bad decision with your investments.

Regardless of whether you can diversify, fraud and things that resemble insider trading should still be punished.

The article makes it sound like the only research she did was:

> and came to know of the phenomenon known as the first day "pop." On the day that companies would debut on the stock market, the price would tend to shoot up before stabilizing

If that is really the limit to her research, I'd have the same sympathy as someone who put their life savings on black and complained when it came up red.

And seeing as investment 101 is "diversify", it seems very likely she really did put that little thought into it.

How much research are you obligated to do before purchasing stock, going into surgery, buying a house, or accepting a job?

I've noticed that the answer to this from others is always "should've done more" whenever a victim (of luck, of poor planning, of circumstances, whatever) dares speak up.

Did a group of people knowingly screw you over on your mortgage? Your fault. Did a group of people knowingly suggest surgery you didn't need? Your fault. Did a group of people knowingly conspire to screw your stocks? Your fault.

Curious American pathology.

I don't understand your argument. Who "knowingly screw[ed] over" this woman?

10% of her losses were on the first day trading. No big deal. Most of her losses were later on while she tried to cash in on a big lawsuit as advised by :

"Her son advised her to hold onto her shares until she either resolved the matter with Vanguard or the price bounced back."

"Her son, who studied finance at UC Berkeley"

Lots of hindsight bias. There's always a grain of truth to it, but the overall American sentiment is that you and you alone are to blame for anything that happens to you (unless it happened to me, in which case it was bad luck). That's why Americans seem less understanding of poor people and tend to put rich people on a pedestal.

Its a craftsmanship thing. Notice its her life savings, not just some random dollar amount however large or small.

I have an uncle who could swing a 1/4 mil loss and laugh. They intentionally chose this woman because she intentionally in gross ignorance decided to blow away her lifes work.

Its like an artist spending his entire life on an amazing sculpture, decades of toil and sweat, then blindly, idiotically, "eh, I donno, I'll just use this sledgehammer to trim the last little bit" and the whole life's work is gone, crumbled into ruin. Do we need sledgehammer control? More education? Can we blame the rich? How about more govt regulation? Nah, just fewer idiots with sledgehammers. Maybe the story will scare dumb people away from one dumb activity... probably into another dumb activity.

Which brings up the next issue, the other part is fools will always find a way to be fools. This quote says it all "He kept asking me what was going through my head when I bought the shares" That was her life's crowning achievement. Not being awarded a doctorate, not a Nobel prize, just an empty head and its all someone elses fault... That money was going to be lost one way or another, in real estate, casino, or other scams. Most scams have really sleazy operators, at least the stock market scam is somewhat less sleazy than some bookies and some used home salespeople and the like. Not much less sleazy, but a little.

> Its like an artist spending his entire life on an amazing sculpture, decades of toil and sweat, then blindly, idiotically, "eh, I donno, I'll just use this sledgehammer to trim the last little bit" and the whole life's work is gone, crumbled into ruin.

Uh, no, it isn't. A lifetime artist would be familiar with his tools and wouldn't make such a stupid mistake. The point is she wasn't an investment banker and didn't have the connections to get advanced information that could have protected her. I don't disagree with your other points, but this analogy is wrong.

There were hidden details in the article, like she'd been an active trader for a dozen years, son has a degree in finance... You might be surprised.

What would be your solution to the problem you pose? Forced education of investors before they invest? Or just banning individual investors from the stock market? I don't really see any other way around the problem.

You do realize that before the widow in question was allowed to invest she had to click through a number of windows that informed her that "past performance is no indication of future performance" and "you're investment is not secured against loss", etc, etc, etc.

One of the historically "American" values is the lack of social and economic barriers to people who want to take risks: the ability for anyone to take a huge risk and earn a huge reward. You don't have to come from wealth or be a banker to take financial risks. If you want to risk your life-savings, no one is going to stop you. Preference is given to the individual freedom over safety.

At the end of the day your life, your choices, and their results are your responsibility. We don't want people/government to protect us from ourselves because that directly limits our personal freedom. The prevailing attitude is that you should be freedom to gamble your own life/possessions and ignore the nay-sayers. You have the right to take on whatever risks you feel you are big enough to handle.

So when someone does something risky, like invest their life-savings, we expect them to own the responsibility for their risk. In our culture risk and responsibility go hand in hand. We have little sympathy when someone gripes about a risky decision that turns badly. It was a risk. If you were not prepared to handle it turning sour you should not have taken the risk. If you did not do even the basic research to understand the nature of the risk we feel even less sorry for you.

We love the story of the underdog who risks it all and wins. We love the story of the underdog who has the courage to risk it all and accepts responsibility when he fails. We dislike the guy who takes a risk capriciously and whines when it fails and we hate the guy who arrogantly takes a risk without spending even a little time to understand it. Playing the stock market is widely known to be a risk. Playing the stock market with your life savings is such a foolish risk it is a stereotype.

I have no problem with retail investors buying stock because they believe in the company and have the patience to hold on to it. That can be a very good, low on stress investment.

But trying to outsmart people living in Bloomberg terminals at their own game, buying on IPO and trying to dump it the same day? Her loss is no ones fault but hers.

Dropping 1/2 of your life savings after retirement into a single nest egg is sort of a classic mistake; one of the textbook things Not To Do when you read any introduction to investing. It's one thing to get flummoxed by handling options and other derivatives; the common wisdom isn't so common there for the novice investor. But stocks are relatively well understood. :-/

It's a real bummer for this lady, and I hope she can figure out how to manage her losses without drastically affecting her life, BUT she committed a classic textbook error in stock trading.

When someone, rich or poor, makes a big bet involving individuals with a repeated history of deceit, that is greed.

I don't think the FB IPO was a normal IPO.

http://www.businessinsider.com/exclusive-heres-the-inside-st...

NASDAQ had problems filling orders. People and institutions didn't find out their orders were filled until hours later.