Yeah, I know, I’m totally ripping this off of Control Your Cash a few months ago. It’s okay though, since he ripped off The Greatest Frugality Blog Of All Time, (TM) The Simple
Doofus Dollar. He probably ripped it off Teen People magazine or something. I guess what I’m trying to say is, the concept of a mailbag is more ripped off than a Chinese copy of Spiderman 3 on Megavideo. If I owe somebody royalties, they can kiss the hairiest part of my ass.
If you want your question featured in the next Financial Uproar mailbag, just go ahead and use the contact me page. I will probably ignore it for something more interesting that I pulled out of my ass. Let’s do this thang.
Yo, Captain Handsome:
What’s up with everyone popping wood when Facebook’s IPO flopped? I thought people liked Facebook.
First of all, well played with the Captain Handsome reference. What time is dinner tonight, Mom?
I noticed this too. When Facebook retreated to the issue price ($38) at the end of their opening day of trading, people reacted like you were giving them a puppy. When it sold off sharply on Monday, people were practically sexually aroused. Considering how most people spend about an hour a day on the stupid thing, you’d think they’d want the IPO to be successful.
There are a couple of reasons why I think people may have acted this way. Firstly, as the blogosphere has discussed ad nauseum, Facebook has a very high valuation. According to Google Finance, the stock trades at 105 times earnings and about 15 times book value. Calling the valuation lofty would be a bigger understatement than calling Taylor Swift kinda cute. Every wannabe investor took a look at the P/E ratio and ran for the hills.
Yet, nobody even bothers to talk about Amazon, (P/E of 176, P/B of 30) LinkedIN, (P/E of 611, P/B of 15.25) Zygna (P/E of DOESN’T EVEN MAKE MONEY, P/B of 2.8) or Netflix (P/E of 24, P/B 6.3). Those got more reasonably valued as we went on, (especially Zynga’s book value) but some of those companies are pretty rich. Why isn’t everyone pounding the table on Amazon going down? Because sweet Jesus, it makes Facebook look like a value stock. If Facebook’s valuation means it deserved to go down, then where are the people cheering Netflix’s recent price decline?
The real reason people cheered Facebook’s decline is because they called it, and they want the reason to gloat. There’s nothing wrong with pumping your chest after a good call, but being the 256838296829532934902582658th person to call it (author’s estimate) kind of takes away what little thunder you’ve earned. Look for their next prediction, that the sun will rise in the east tomorrow.
I have a question about financial blogs in general. It seems like everybody has differing opinions about everything. Some say you should start your own business, others say you should go find a job. Some say you should cut your spending, while others focus on increasing your earnings. Some say you should use the snowball method to get rid of debt, others say you should pay the debt with the highest interest rate first. What gives with all the contradictory advice?
Here’s the deal Stevie. Most bloggers don’t know anything beyond their experiences. If that’s all they have to draw from, what are they supposed to do? Make crap up?
Finances are just a big ol’ confirmation bias. If I have credit card debt and I use the snowball method to pay the thing off, I’m probably going to tell the world how awesome the snowball method is, even though math would argue with that logic. It might be the most useless thing in the world for the reader, but all the writer has to lean on is prior experience.
(Aside: one night when you’re bored, get your favorite adult beverage and Google Reader with like 1000 unread personal finance blogs. Drink every time you read some variation of ‘works for me’. I guarantee you won’t make it through all 1000.)
This isn’t really a bad thing, unless the author literally tells you to throw money away. Just keep in mind that the author has a bias that they’ve probably disclosed, just not directly. It’s up to you whether you embrace their advice or discard it. Just remember, usually when someone says ‘works for me,’ that means they’re justifying a bad financial decision.
Why do I suck so much?
I know you like both RIM and Nokia. If you only had to pick one, which one should I buy?
Joesph Carter Ashton Vanderbuilt III
Hey, that’s the closest I’ll ever get to Harvard.
I know this is going to sound like a cop-out answer, but just hear me out. You should buy both.
I think both companies are capable of turning things around. RIM has a fortress of a balance sheet, even though their path to profitability isn’t very clear. Their new phones aren’t very exciting, and I’m not really sure what the catalyst will be to boost the shares. Meanwhile, Nokia has already released a couple of models of their new Windows based phones, with plans for a tablet later on in the year. Nokia has an execution problem facing them, while RIM has an identity problem.
Who really knows which one will recover. One might, both might, or they might both go to zero. When you invest in companies like these, there is a legitimate risk they will go to zero. I’m willing to take that risk, since the upside is so great if they figure it out. If one of RIM or Nokia survives, the stock price could easily increase 5x from these levels. If one goes up 5x and the other goes to zero, you’ve still made 4x your money. I’m willing to take those chances all day long, and so should you.
If you bet the farm on one and the other goes up, this is bad. Spread out the risk. You may lose a bit of return, but you also decrease your chances of losing all your money.