Stock investing is a lot like riding a motorcycle: It can be fast, furious and a hell of a lot of fun.
Or you can crash and burn.
Motorcycle enthusiast and stock investor Jim Nichols, 60, hopes to the be in the first category on Friday, when the opening bell rings for Facebook (FB) on the NASDAQ. If all goes well, he could end the day with a lot more. Maybe even enough to buy another supped-up BMW K series motorcycle.
Or he could end the day with less than he started. "I just want to say at the bar I got in on it," he said in a phone call on Wednesday, not sounding overly worried about potential financial loss.
The excitement for Facebook's initial public offering has gripped Wall Street bankers and individuals alike this week. On Wednesday the company increased the number of shares made available 25 percent to more than 420 million to satisfy the demand from investors to own a little piece of the social media company. The expected price range for Facebook shares is $34 to $38.
Small-time investors are eager to cash in; one is reportedly even willing to gamble with his child's college fund for a piece of the action.
Nichols, who lives in Norwalk, Conn., applied to buy 500 shares through E*Trade, which could cost him $19,000 at the top price of $38 per share. But he won't find out until Friday morning exactly how many shares E*Trade allots him; it depends on how many people have applied for shares through the online stock-trading platform.
He is part of a relatively elite group of personal investors who met certain financial -- but somewhat unclear -- guidelines at major brokerages including E*Trade, TD Ameritrade, Charles Schwab and Fidelity and were able to place an early order to buy shares. As of Wednesday, most of these brokerages had stopped accepting purchase applications.
Nichols insisted that he's not buying the shares to earn money but for bragging rights.
"I want to look back and say I was there," he said. But maybe a little money would be nice; he conceded he might sell as much as half his share to "capture some money."
But personal finance experts are trying to temper expectations for anyone hoping to get some Facebook shares for the same reasons Nichols does -- bragging rights and maybe a little extra money. Most would-be Facebook investors must wait until active trading starts on Friday to jump into the fray, but experts recommend staying on the sidelines even longer.
One reason is that opening day prices can be inflated. Other recent well-hyped social-media company IPOs have failed to match investor excitement. Groupon is now trading at half its debuted value. Likewise Zynga is also trading slightly below its opening price. LinkedIn, which opened at $45 almost exactly a year ago trading at well over $100 per share this week.
Even for those who don't plan to to grab a share -- or 500 -- of Facebook might end up have a bit of Facebook stock in investments anyway. Many of the big fund companies, including Fidelity, T. Rowe Price and Morgan Stanley have funds that include investments in private Facebook shares.
Many traders and investors think that Facebook's stock is overpriced. The company's more than $100 billion valuation is simply too high, they argue. But unlike Google, which was valued at $24.6 billion when it went public in 2004, Facebook right now has a stock price that's more expensive, relative to earnings and revenue. And that means that the stock's price probably won't demonstrate the same meteoric rise that some early investors witnessed with their shares of Apple or Google, for example.
"Facebook will grow into its valuation," said Michael Giles, the founder of social media investing platform RoboInvest.com, on which market players can publicize and follow one another's trades. Unlike Nichols, Giles is a not buying any stock. Nichols is also an angel investor in RoboInvest.
As someone who has been actively investing for more than two decades and ran a boutique brokerage for 10 years, Nichols said Facebook's IPO reminds him of Cisco Systems' in 1990, when he bought 100 IPO shares at $18. Cisco builds networking equipment and is credited with laying the groundwork for the Internet's boom. Nichols feels Facebook could be a game changer in a similar vein. "My whole motivation is to have another touch point in something that has dramatically changed landscape forever," he said.
He sold those original shares about two months later at $22.62, only to buy 500 shares in March 1991 at $25.75. Subsequently the stock split nine times in the first decade it was traded. His 500 shares and a few other trades in Cisco ended up turning into about 17,000 shares by 2005 -- a chunk of change worth more than $300,000. In other words: It was a terrific investment.
But still, he is cautious about the gamble on Facebook. While he enjoys the rush of riding the market -- and motorcycles -- they have more in common than adrenaline.
"They both require concentration, awareness and strategy," he said. "Concentrating on what the markets are doing as well as the traffic around you. Awareness of being present in the moment as to what is happening. And strategy to have options for exiting a bad or dangerous traffic situation."