The coming Facebook IPO will reignite interest in the stock market, and make it interesting to a whole new generation.
Many young adults fear investing in the stock market after witnessing the global financial crisis (GFC) and its affect on the world. The fear comes from not knowing how to invest, how the stock market actually works, or why the global financial crisis happened in the first place.
With fresh problems like the global sovereign debt crisis, young adults have every right to fear investing in the stock market, and will undoubtedly be scared for decades to come.
But with over 850 million active users around the world, Facebook's IPO will reignite interest in the stock market for young adults who had previously abandoned investing, but more importantly will encourage a whole new generation to start investing for the first time by being able to buy stock in a company that operates a product that is part of their daily lives.
At less than $50 a share, Facebook's stock price will be cheap enough for young investors with limited funds to be able to buy it, and for their investment to feel meaningful. To compare it with Google, at over $600 a share, someone with $500 to invest can't buy into Google. Investing is a game of psychology, and only buying 1 share doesn't feel meaningful to the investor, even though buying 1 share at $600 or 10 shares at $60 is the same thing. Markets work in percentages.
At a $100 billion valuation that investment bankers are selling it to investors, Facebook will be a company that grows into its valuation in the short term, and will fall victim to the law of large numbers. The biggest capital gains have already been made since it remained a private company for so long, and therefore naturally it has limited upside potential. Nevertheless, this IPO will still be the most sought after since Google's Dutch auction in 2004.
Expect many other technology companies to start planning their IPO's.
Follow Michael Giles on Twitter: www.twitter.com/harland