Interviewer: So it's been one week since Facebook started publicly sharing its stock on Wall Street. There is a lot of hype but now there's been a lot of headaches. We're breaking out the details this morning with financial expert, Matthew Stout, president of Stout, Joyce, and Bowman Associates in Camp Hill. Thanks for coming in.
Matthew: Thanks for having me.
Interviewer: Okay, so let's talk about what happened. It's one week ago, Facebook entered the stock market. The initial public offering, what happened?
Matthew: You know, this was one of the biggest hypes IPO that have been in recent history. A lot of people were excited, waiting for this to come out, wanted to be a part of that. A couple of things happened almost at the 11th hour. Since there was so much interest, they decided to offer 25% more stock shares available, which now started to dilute the shares that they already had out there. That was one of the problems. That almost stifled the initial pop we see with big IPOs when they come out right away. We didn't see that big pop with Facebook when it came out.
The real problem started as soon as trading opened. The market opens at 9:30, IPOs usually start about an hour later to make sure there's no market glitches with the computers and lo and behold, with Facebook, there was a computer glitch. A lot of problems, almost about an hour, hour and a half, people were placing buys, sells, and they weren't getting confirmations. So they were changing those orders. A lot of people didn't find out until Monday whether or not their orders were executed and at what price they actually paid for the stock.
Interviewer: Okay, so a lot of people are upset. There's now some investors that are suing Morgan Stanley, suing Facebook. Is this a case? Does this case hold water?
Matthew: You know, it's hard to say. I have heard that NASDAQ market has come out and said that they are willing to reimburse some expenses based on the trading glitches. I think the lawsuits that we're seeing have to do with some of the material effects that may have been disseminated to the bigger banks right before the IPO came out that wasn't necessarily common knowledge to the average investor.
Interviewer: Okay, so somebody like me, I wouldn't have known about that change?
Matthew: You would not have, you would not. You would have thought Facebook was rolling along, doing exactly what it's supposed to do that everything was good and happy. However, they started decreasing their earnings forecast moving forward, sharing the information with the big investors ahead of time.
Interviewer: Is it still a good stock even though it has dropped off?
Matthew: It's hard to say. You know, I think you can make a case either side for that. When you take a look at P/E ratios and that's how much a company earns versus what it’s actually trading for, their P/E ratios are in the 800s. You see a lot of tech stocks in the 20s and the 40s.
Interviewer: Got you. Well, let's talk about first-time investors because a lot of people were saying, "Hey, I am on Facebook all day long, maybe I should start investing in it." What are some good tips for a first-time investor?
Matthew: Best tip I have is number one, never make an emotional decision. Just because you want something to happen, doesn't necessarily mean that it will. The other thing is don't get so attached to your choices that you're not willing to admit you made a mistake which means you buy a stock, it starts to go down, you feel good about it, and you watch it ride the whole way down. I always ask people to set a goal about the low side and the high side when you buy a stock. If it drops 10%, I'm willing to cut my losses and move to something else. On the same side, if something starts to run and get really profitable for you, you have this feeling that it's never gonna end. And you wake up one day, and all of a sudden, it's in the other direction. So don't get greedy, don't get emotional, begin with the end in mind when you purchase stocks in the first place.
Interviewer: And should we talk to a professional?
Matthew: Absolutely. Absolutely. Yeah, it never hurts.
Interviewer: Never hurts.
Matthew: Just to kind of bounce your ideas off of them. Let's say, "Here's what I'm thinking, tell me if you're agreeing with that. Maybe you have some different alternatives as well."
Interviewer: And quickly, is it good to invest in things that we like? You know, I love a good jacket from Banana Republic, should I invest in Banana Republic?
Matthew: Here's the good news. There are tens of thousands of investments you could make. So in order to make the short list, number one, it should be a company that if you're investing for the first time, you have some understanding of what they do, what product do they provide, what service do they provide. Do they actually make money and are they good at what they do? So that can start to shorten your list very quickly, to maybe give you 5 to 10 items to start to do your research, technical analysis, fundamental analysis, earnings, how they're positioned in the marketplace. A lot of research goes in but if you start with something that you know what they sell and what they provide, you're a step ahead of the game.
Interviewer: All right, Matthew Stout, thank you so much. We have more information on our website, fox43.com, just click on the Morning News tab. More to come on Fox43 Morning News at 7.