Facebook IPO Will Bring a Whole New Generation to the Stock Market

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.

 

Comments

[Young Investor]

12:48 PM on 04/06/2012

Beyond just the money to be made and lost by people sinking their savings into Facebook stock a whole new generation unfamiliar with investing or even how stocks work will want to buy Facebook stock. This group will be forced to learn the rules of the game. This could reinvigorate young people to get into the stock market and breath a bit of fresh air and volume to trading.

I have written on this extensively at: http://youthfulinvestor.com/invest-facebook-ipo/

[thenextstreet]

05:24 PM on 03/06/2012

Nice article - On a related note, I think you'll enjoy: http://nowstreetjournal.com/2012/02/21/cousin-cara-and-facebooks-ipo/

[Sundialsvc4]

02:51 PM on 03/06/2012

You know, Michael, I do think that you are equating "young" with "stupid." Or at the =very= least being insufferably patronizing. The only thing that anyone in that demographic can say about the stock is that it is a well known-to-them brand in the sense that they use it (note to self: paying nothing for the privilege) every day. There are =lots= of other equally well-known brands that they use every day.

But of course, "IPOs" are Wall Street's fundamental sucker-product. Crowd Psychology. "It even makes Julienne fries! On sale today!" Try to stir up a mad rush to buy "today," albeit for no particular good reason. It's a strategy that seems to work well enough for Wall Street, insofar as they repeat the practice constantly.

Young people might sound like an exceptionally easy "mark," but they are quite a bit smarter than you think.