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Facebook IPO shares tough task for small investors

By Dave Carpenter

Associated Press

Published: Monday, May 14 2012 4:14 p.m. MDT

Fidelity, which will be getting an undetermined number of shares from underwriter Deutsche Bank, says customers should have $500,000 in their accounts and have made 36 trades in the past year to be eligible. Ameritrade's account requirements are at least $250,000 and 30 trades in three months. Schwab's are a minimum $100,000 or 36 trades in the past year, but the firm says it also has other requirements.

Even meeting the requirements is no guarantee of getting shares.

Joshua Freeman, an information technology professional in New York, knows investing in Facebook is risky, but he believes "it's got a pretty good shot to make some money."

He has been investing with E-Trade since the mid-1990s and has about $200,000 in his account. But he's pessimistic about his request for 100 Facebook shares at the IPO price, given the frenzy over the offering.

"I'm hoping to get some but I'm guessing that I won't," Freeman says. "I'm hoping it follows the trend and goes crazy and then dips a little bit. If it does that, I may buy some on the open market."

— OPEN MARKET

If you strike out as an insider, it will still be easy, but expensive, to buy shares on the open market. Open and fund an account with a brokerage. Then for a transaction fee of as little as $7, you can buy Facebook stock at whatever price the market demand has driven it.

Be aware that the price could jump significantly by the time you place your order. Among last year's hottest IPOs, Groupon Inc. soared in the opening minutes and gained 31 percent on the first day of trading. Zillow Inc. jumped 79 percent and LinkedIn Corp. more than doubled.

Investors buying on the open market miss much or perhaps all of any first-day "pop."

The first-day market price of newly issued stocks during the past decade has been an average 11 percent higher than the offer price, according to University of Florida finance professor Jay Ritter.

For investors buying at the offer price, Facebook is likely to produce a gain on the first day, he says. But once it starts trading, investors should think of it as just another stock that's as likely to go down as up.

Consider this: Groupon, which went public at an IPO price of $20 six months ago, soared as high as $31.14 on the first day. It closed Monday at $11.73, 41 percent below the offer price.

As for the idea of buying the stock at a low point a few months from now, Ritter says that has not worked historically as a reliable strategy with IPOs. And this one's starting at a very high price, he emphasizes, with optimistic expectations of future growth built into it.

The only sure winners, he says, will be Facebook employees and venture capitalists who invested in the company when it was private.

James Breyer and his Accel Partners firm, investors since 2005, stand to make up to $1.34 billion from the 38.2 million shares they are offering. Zynga Inc. CEO Mark Pincus, a Facebook investor since 2004, stands to make up to $35 million on 1 million shares.

"The time to buy Facebook was five years ago," Ritter says.

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