Facebook Follies – When Liberal-Like Hype Trumps Conservative Common Sense

May 23, 2012

This blog is about conservative principles as they apply to the investment community.  It may not look like it at first, but if you trust me and hang in there, you’ll see what I mean.  Eventually.

For those who followed Facebook’s projected IPO since late last year (and, because of a client I had at the time, I was one of those), the big initial surprise was that it opened at $38 a share.  Back in the fall, “the word” was originally that it would open at $100 a share … then this projection fell to $50 a share (I wrote a blog about that at the time for one of my clients, nothing how sharply the mighty had already fallen), but it kept falling even farther, as presumably saner heads realized that a company which manufactured nothing, which basically sold nothing, and which could very easily go the way of the firm it replaced (MySpace) had nowhere near the intrinsic value that it’s founders – and their investment bank, Morgan Stanley – seemed to be putting forth.

Is Facebook really worth more than General Motors with it’s many plants, thousands of dealers, tens of thousands of employees and literally millions of cash-on-the-barrelhead customers?  Is Facebook really more than McDonald’s, with it’s world-wide franchises and billions of hamburgers sold every day (or so it seems)?

The only sane answer is “no.”

Which raises the question, “why did it open at $38? Why not $3.80?”

The answer is simple, and it applies not just to Facebook, but to a lot of gone-public social media wunderkinder.  Fan investors.  People who – when it comes to investing – think like political Liberals – driven by Hype and shiny (but unrealistic) promises and ignoring conservative common sense.  They “like” Facebook, so of course it’s also got to be a good investment, and they just can’t wait to put their money where their “like” is.

There’s a business – One Share – out there that my wife found a few years ago.  What they do is sell individual shares of stock, usually nicely framed, which are given as gifts to people with an affinity for the company.  A few Christmases ago, she gave the whole family shares of stock – for me, it was a share of Sturm-Ruger, the pistol, revolver, rifle and shotgun maker (I admit to being a big fan and a regular customer – my Mini-14 is my favorite target rifle, and should come in handy if the chaos in Greece spreads to Europe, and then spreads here to the states, as many “preppers” fear).  One son it was Wal-Mart, since he’s a teacher in Bentonville, Arkansas, the home of Wal-Mart.  One son got a share of a beer company well-known in St. Louis (my wife’s home town), and other family members got other stocks that fit their likes or lifestyles.  It’s a great gift – and as long as you’re only buying a single share, it’s not a bad idea, even if it’s a bad stock.

But investing big-time in a company because you’re a fan of that company is not, generally speaking, a sound investment strategy.  It is a Liberal, driven-by-hype and “feelings” investment strategy, rather than a conservative,fact-based, driven-by-common-sense investment strategy. However, it’s also an all-too-human behavior for people who are prone to get caught up in the moment, and that – to me – is one big answer to the question of why the Facebook hype drove the stock to sell out at $38, then rise to $42, before dropping 18% from its opening just a couple of days later.  Who knows where it will be when you ready this, but it’s unlikely to be above $38, at least in my humble-but-never-incorrect opinion.  Facebook is NOT bigger than GM, and it doesn’t sell more burgers than McDonald’s, and … well, it’s not a company that justifies a one-hundred-billion-dollar valuation.

Which brings us to the question you’re probably asking yourself. What the (ahem) does the Facebook Follies have to do with a conservative blog, especially a conservative blog written in Nevada, and (presumably) at least occasionally written about Nevada.

Nevada’s number one industry is tourism, and that tourism is built around gambling.  The Las Vegas Strip is lined with billion-dollar-plus gambling palaces, and even in relatively tough times, there are lots of people who’ve come from China or the South of France or East Hayrack, Iowa, to bet the mortgage money on Red 17.  Which may explain those gambling palaces, and why you seldom see an investor in one of those palaces go broke himself (unless he succumbs, like a drug dealer who finally decides to sample his wares, to the lure of the spinning wheel or the next card in the deck).  There are many conservatives who wisely invest in gambling palaces, because they know that it’s hard to lose when you bet on human vices.  Some of those conservative business people also get involved in politics – and even those who back Liberal Democrats politically seldom eschew their conservative principles in their own businesses or investments.

The basic conservative principles in politics – which include a pragmatic, cut-the-card approach to making sure that you’re not being suckered – apply to business as well.  And if you’re an investor, the first thing you’ve got to ask yourself is this:  “Is it possible (then ask it again, and substitute “likely” for “possible”) for this business to bring in enough money, while maintaining a low enough cost-of-doing-business – to make a profit in the current economy?”  Then, if the answer to the first two-part question is yes, you ask, “Does this company have a business model – and a business plan – that will allow it to bring in sufficient money (without spending too much money to bring that cash in) to make a profit in this current economy?”  So – is it even possible, and then, is this company focusing on that possibility?

Where you make your money in the market is when you ask those two questions – and come up with the right answers – and get there ahead of the thundering herd of followers (individual and institutional thundering-herd followers). The herd, having belatedly reached the same conclusions you did, will buy late and drive the price up, making you look like a visionary, when all you did was behave prudently and conservatively.  Just as the house does in a gambling palace.  Sure, some long-shots pay off, but the house always wins in the end. Always.

And that’s where no conservative – acting on conservative principles – would ever dream of buying Facebook’s stock.  Unless, perhaps, he had planned to ride the initial burst of enthusiasm, then cash out very quickly, before the buying public woke up to the reality that there’s in sufficient “there” there to support the company’s valuation.  But that’s the kind of high-risk you find in Vegas when you put it all on Red-17 and spin the wheel.  So even that is really not a conservative investment.  Conservatives are not totally risk-averse, but I find it hard to picture any conservative foolish enough to make that risk.

Just as no conservative would risk supporting the far-out, Red-17 Washington wild-card ideas which (might) work, once in a blue moon, but for which the odds are clearly against them.  That was President Bush’s big mistake – his “compassionate conservative” approach wasn’t a true conservative approach, which led him to backing programs which sounded wonderful, but when you look under the hood (or, in Vegas terms, cut the cards), you realize that the odds are way-long and very much against you.  And that’s why all of President Obama’s ideas are wrong, and cannot work.  They are all built on a hype-driven house of cards, all drawing to a hype-driven inside straight, all of them hype-driven ideas with Facebook-like glamor and glitz, and with a Facebook-like chance of really being a hundred-billion-dollar company.

Not here, not now, no way.

Ned Barnett – Nevada Conservative

Ned Barnett has worked in campaigns, and as a speechwriter to candidates and elected officials, since he was the “mascot” to the local Young Republicans in 1964 (Goldwater) – he has managed media and strategy for three state-level Presidential campaigns, and worked hand-in-glove with the legendary Lee Atwater in South Carolina in the Ford Campaign.  In 2009-10, as an active Tea Party supporter, he served as both the Clark County/Las Vegas and Nevada Republican Party Communications Director.  He owns Barnett Marketing Communications in Las Vegas, and provides a full range of PR, marketing, issues-management and fund-raising services for clients in Las Vegas, around the country, and in several other countries.  He can be reached at 702-561-1167 or ned@barnettmarcom.com …


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One Response to Facebook Follies – When Liberal-Like Hype Trumps Conservative Common Sense

  1. Facebook Follies | Conservative USA on July 2, 2012 at 5:00 am

    […] the Facebook Follies have to do with a conservative blog, especially a conservative blog written in Nevada, and (presumably) at least occasionally written about […]

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