iOS app Android app More

Featuring fresh takes and real-time analysis from HuffPost's signature lineup of contributors
Ebong Eka

GET UPDATES FROM Ebong Eka
 

Facebook Flubs? You Can Still Make Money!

Posted: 05/30/2012 12:21 pm

Family cookouts and poolside parties are customary for Memorial Day weekend. Facebook has also made it customary to share these experiences through status updates. So what's Facebook's status update for today?

Facebook stock has lost approximately 21 percent of its value since the social network joined the public network (IPO) on May 18th, 2012 on the NASDAQ. Many investors seeking short term gains and quick riches lost their shirts during the subsequent days of trading.

So the obvious question is: What the heck happened?

In Steven Russolillo's Wall Street Journal article, Walter Zimmerman, senior technical analyst at United-ICAP succinctly explains:

"What happened to the Facebook IPO? Human nature happened, crowd behavior can be ugly and dangerous...I would like to suggest that Facebook may be a great signpost, but not a great stock to own."

I can't help you with past mistakes nor am I quick to say that buying Facebook is a mistake. However, here are some important tips the average investor has to know BEFORE investing in the market.

Personal Investing Tips

1. It's About Style -- You're investment style is important. Determine if you're a long term investor or going after a quick buck. Many investors lost money on Facebook because they wanted the quick buck. Institutional investors made money...regular people didn't!

2. Buy what you know -- Invest in companies that you can understand. Learn and understand:
a) what they sell,
b) who they sell it to,
c) what their cash flows are,
d) what their debt (debt to income ratio) is.

3. Revenues -- The stock price is generally based on future earnings of the company. So you need a track record of earnings trending upwards not downwards.

4. Sheeps Get Sheared -- Don't follow the sheep! Like the dot-com bubble or housing market; people like to follow the hot stock of the week. Important to analyze the stock or funds track record! Don't follow a "hot tip"! By the time you hear about it, it's no longer a hot tip.

5. The Pro's Know -- Hire a professional to analyze your portfolio periodically. You wouldn't hire a dentist to fix your car or a mechanic to fix your teeth. Investing is a full time job. If you don't invest for a living a professional is imperative.

Find a financial advisor at The National Association of Personal Financial Advisors to find a licensed professional.

Regular investors lost their shirts because they bought Facebook shares at the start of the IPO. Lack of information is another reason for the losses. Following the hype like sheep gets you sheared. Investing for the long term gets you rich!

 
FOLLOW MONEY