Should Small Investors Hate the Stock Market?
Correction: They dove into the Facebook IPO, not the market, headfirst.
It made me sad to read the story of the 34-year old husband and father of two from Baton Rouge who dropped $4,000 -- one month's salary -- on Facebook stock. How about the woman from Granite Bay, California who "thought it would be fun to get in on the initial frenzy"? She bought 100 shares shortly after Facebook's debut.
You do not have a heart if you respond to these experiences with "serves them right ... idiots." We all get caught up in some form of excitement and make poor choices from time to time. If you cannot empathize or, at the very least, sympathize with your fellow human, you're the one with the real issues.
That said, these two folks and the thousands -- or millions (?) -- of others who made similar Facebook-related missteps deserve a tongue lashing. However, they do not need us -- members of the financial media, readers of TheStreet and self-proclaimed savvy investors -- to provide the verbal punk slap.
When I screw up, I am my own worst critic. After I conclude beating myself up, I seek out the information I need to ensure I do not make the same mistake multiple times. I do my best to not jump back in until I have my ducks in a row.
I hope the folks who got burnt on the Facebook IPO do not throw in the towel. Instead, it would be heartening -- and, frankly, good for the country -- if they went back to the drawing board, did a little bit of hard work and came back stronger for it. As much as they have themselves to blame, room does exist for some finger pointing.
We all run in a society full of short-term thrill seekers where the sky is perpetually falling and If it bleeds, it leads. Large factions of the media -- financial and mainstream -- exist to do little more than create a scene. Events such as the Facebook IPO end up becoming spectacle, rather than thought-provoking and analytic learning opportunities.
Outside of a handful of worthy contributions, most of the hype leading up to the Facebook IPO consisted of man on the street segments where, ironically, an attractive woman asked people if they planned on buying shares. Most subjects had to ask what IPO stands for.
The guy from Baton Rouge apparently included the Facebook buy as part of his self-directed retirement account. The lady from California wanted to be part of a monumental occasion. In that regard, we share some similarities.
I expect Facebook to play a role in my retirement account. And I could not resist buying the stock shortly after it became available to the public. That's where the likeness ends. I purchased three shares of FB on IPO day. I still hold the same three shares.
I am quite bullish on Facebook the company. Same goes for Mark Zuckerberg the CEO. I do not intend to touch the stock (beyond my souvenir lot), however, until it trades considerably lower than its offering price and probably much lower than where it is now.
I took a different path with the IPO than the guy in Baton Rouge and the lady in Granite Bay. That's because I have a better idea of how to organize and maintain a long-term portfolio of investments. And I better have. I spend practically every waking moment following and obsessing over the stock market.
Mere mortals like us should rarely (maybe never) buy -- with money we would rather not lose -- an IPO on day one. Let it ride and slide. Check back in three to six months to see if the bullish story you told yourself three to six months ago remains intact. Beyond that little bit of excitement, stay the course.
I keep about 70% of my portfolio in pretty big growth companies that dominate or have the potential to lead their spaces. Most of them pay dividends. I scale into each position with as little as $50 a month and, often, much more than that. I reinvest all dividend and covered call income.
That's not sexy so, of course, without a good financial adviser or some form of self-education, you cannot expect the average person who dove headfirst into the Facebook IPO to understand that strategy, let alone know how to execute it. That's like expecting me to back an 18-wheeler into a loading dock with no prior simulation or real-world experience.
The Market Is Not the Enemy
Investors who got duped by the Facebook IPO did not get duped by Facebook. Morgan Stanley
They should direct their anger toward the critics who cannot stop with the Facebook hate. Often, these are the same people who finger Facebook, Morgan Stanley, Nasdaq and the IPO process as the culprits for scaring new investors away from the market.
Because the story sells, the media made the decision to frame an IPO as something small investors should have access to, but, crooked as it is, Wall Street refuses to provide a level playing field. What a load of crap.
IPOs, as well as the general stock and options market, have been, for all intents and purposes, rigged against the garden variety individual investor for decades. That doesn't mean you should stay out of the game, attempt to change it or even complain about it. Don't waste your breath. Make the stock market work for you.
Take a relatively conservative approach to investing. Dollar cost average into a handful of core stocks and/or mutual funds as often as you can. Learn how to repeat this relatively boring exercise over and over again, while everybody else is in a tizzy about the latest Wall Street-related outrage.