Facebook, Week Two: Fortunes Made and Fortunes Lost (Mostly Lost)

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Facebook Sam LesserIt's not quite two weeks since Facebook went public, and the saga of the IPO continues to provide a near-endless stream of headlines. The most recent victim is, surprisingly, Mark Zuckerberg, the 28-year old CEO, for whom the public sale of Facebook stock translated into a dizzying rise -- and slow fall -- from the ranks of the world's wealthiest citizens.

Meanwhile, a cadre of investors -- including a precocious 11-year-old stock player -- continue to complain that a variety of factors either obscured Facebook's true value or got in the way of the smoothly executed trades that would have meant a quick fortune for them.

The Tragic (Largely Fictional) Tale of Zuckerberg

According to most media watchers, the Zuckerberg tale is a tragedy, The Social Network, Part Deux. In this sequel, the young antihero takes his company public, sells a pile of stock, and experiences a brief moment in the clouds as he manages to squeeze his way onto the Bloomberg list of the 40 richest people on the world. Sure, he's right below Azim Premji, a generally-unknown 66-year-old Indian software magnate, but the point isn't where young Zuckerberg is on the list, but rather that he's officially made it. As Oscar losers always say, it's an honor just to be nominated.

But Zuck barely managed to land his deluxe apartment in the sky before Facebook's stock -- the shaky, overvalued bedrock on which he built his castle in the clouds -- began to crumble. Before you could say "massively overhyped," the price of FB shares started to collapse, from $38 to $31 to -- at close of trading Wednesday -- $28 or so. Meanwhile, the young CEO, whose name is now synonymous with evaporated paper wealth, finds himself kicked out of the Bloomberg top 40 party. His replacement? Luis Carlos Sarmiento, a Colombian banking billionaire so obscure that, when CBS Money Watch described him as a Mexican banking billionaire, nobody noticed.

That's the tale as it currently stands: a classic, Greek-style tragedy of hubris, epic overreach, and equally epic failure. It's compelling, exciting, and educational. The trouble is, it is also largely made-up.

What Really Happened

To begin with, Zuckerberg clearly never intended for the Facebook stock sale to be a quick money play. When the company went public, he sold less than 6% of his shares, mostly to raise the funds necessary to pay the tax bill on his remaining holdings. This, by the way, stands in stark contrast to many CEOs -- like Angelo Mozilo and Stephen Schwarzman -- who seemed only too eager to sell their holdings in their companies. Then again, Zuckerberg has never made a secret of the fact that he plans to stay with Facebook indefinitely.

And, to be honest, it doesn't seem like the young CEO is hurting. The day after Facebook went public, he married his longtime sweetheart, Priscilla Chan, in a move that many considered romantic (he didn't make her sign a prenup) and others considered coldly well-planned (by marrying her after the IPO, he probably shielded most of his wealth in the case of a divorce). Either way, Zuckerberg and Chan are currently enjoying themselves in Italy.

(Side note: For one recent meal, the happy couple spent $40 on a dinner of fried artichokes and ravioli. They didn't tip [it's not common practice in Italy]. In other words, Zuckerberg and wife are already figuring out how to make their small fortune go a long way.)

The Rest of the Investors

So things are okay with the Zuckerbergs, but what about the rest of Facebook's investors? Unfortunately, most of them haven't been doing quite so well. As the stock price has tumbled, the media has echoed with furious recriminations. Blame has been slung in all directions: Depending on who has the microphone, the villain may be Zuckerberg, Facebook, or Morgan Stanley -- the IPO's main underwriter. Most Wall Street watchers agree that NASDAQ, the exchange that hosted the IPO, was more or less incompetent. Morgan Stanley (MS) has suggested that it may reimburse purchasers who overpaid for the shares; meanwhile, Facebook is allegedly trying to move its stock to the New York Stock Exchange.

Such a move will come too late for many investors who were not able to buy and sell shares fast enough. The latest poster boy for those who were burned by the Facebook IPO is, literally, a boy: 11-year-old Sam Lesser, a New York-based fifth-grade entrepreneur who had hoped to bet his stake on Facebook, but wasn't able to execute the necessary trades.

Facebook Sam Lesser

According to The New York Post, Lesser owns his own company, SML Networks, which sells bracelets and skateboards. With $10,000 that he's saved from his sales, Lesser hoped to buy Facebook shares. Unfortunately, NASDAQ's lousy system got in the way, cutting out the poor kid's sale and preventing him from cashing in on the profits he had hoped to make.


As with the much-discussed Zuckerberg disaster, however, this tale also has a few holes. To begin with, Lesser claims that "we could have made money on this," suggesting that he planned to sell his shares fairly quickly. Had he bought at $38, then sold when Facebook briefly surged to $41.68, he would have made nearly $1,000. However, had Lesser kept his shares past 3:45 p.m. May 18, his investment would immediately have started losing value. As of Wednesday afternoon, it would be worth around $7,400.

So was Lesser undone by NASDAQ, or saved from a big loss? While the answer is unclear, one thing is certain: If he wants to buy and hold, the young investor might want to wait for a little while longer -- it looks like Facebook's price hasn't finished falling.

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.



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Anon

Not a single tear was cried this day.

June 01 2012 at 7:01 AM Report abuse rate up rate down Reply
Anon

These greed monsters will be okay. I love the $100 bill sticking out of the lunch bag. Guess they are trying to convince us that his lunch money was taken. Didin't have any smaller bills than $100 to get your brainwashing across. You people are ridiculous. Stay out of the stock market with your get-rich-quick schemes.

June 01 2012 at 6:57 AM Report abuse rate up rate down Reply
Anon

Obviously his parents are extremely misinformed if they think when you lose money in the stock market that you've been duped BUT when you make money it's ok. No story here. They probably think someone will feel sorry for this kid and either give him his money back or pay for his college. Hopefully not. Consider this a lesson. Don't gamble in the stock market if you aren't prepared to lose. Since you don't know this, you should probably stay far far away. Obviously, they aren't in dire straits I see the jumbo Mac screen on his desk. You'll be alright, Wellington. Tell your ridiculous parents to stop making rash decisions with your money thinking they'll get rich quick. I love the part about how they were going to donate part of the money to the Livestrong charity. That seems to be the go to in order to get people to feel sorry for you these days.

June 01 2012 at 6:51 AM Report abuse rate up rate down Reply
Mark

Were any of the angry under any impressions that the stock market is guaranteed money and profit??? Gimme a break. You bet - sometimes you win, sometimes you lose. Get over it.

June 01 2012 at 1:01 AM Report abuse rate up rate down Reply
Handsome

Oh how I feel for that poor eleven year old. He wasn't able to get his money on the pass line before the first roll of the dice. He is not an investor, he's a gambler. Investors buy into something to help it grow.

June 01 2012 at 12:56 AM Report abuse rate up rate down Reply
Rick

Heh I'd wait another month before even thinking of buying any kind of facebook stock as it's a given that the price for this stock will go down most likely to about 14-20 dollars . Like they say buy low sell high. Facebook has no track record . Look at myspace it was a hot once upon a time then it cooled down so facebook could take over the reigns of king of the internet chat scene. I predict myspace will rebound soon and give facebook a run for the money watch and see folks. ;o)

June 01 2012 at 12:43 AM Report abuse rate up rate down Reply
rokinray

hey dumbass---diversify!!

June 01 2012 at 12:25 AM Report abuse rate up rate down Reply
rickahight

Investing in stocks, particularly IPO's is very risky. Anyone burned from investments in stocks can't have it both ways. Short term speculation in stock is a bad decision unless you can afford to loose all you invest.

Otherwise too bad as there are no legal guarantees an IPO will maintain it's value.

Read the warnings in any prospectus!!!!!

June 01 2012 at 12:02 AM Report abuse rate up rate down Reply
wendyo1982

Boo HOO a rich kid got burned Waaa!

May 31 2012 at 11:45 PM Report abuse rate up rate down Reply
brennemanbelkin

You're eleven. Put it in your pocket and ride it out. You'll do fine.

May 31 2012 at 11:39 PM Report abuse rate up rate down Reply