The Danger of Facebook

If you're reading this I assume you are thinking of, or already are trading the Facebook IPO today. I would like to urge people to reconsider and leave this one alone. Here's why:

You have no advantage. As I've said before on this blog, good trading is all about taking superior risk/reward trades. This company is commanding the attention of every big trader and firm not to mention thousands of other people who have no idea what they're doing. The IPO will trade nonsensically at first because of this so how can you hope to predict any clear directionality?

With a company like this, there are a million different opinions about what it is worth. Only a few of those people know what they're talking about. If you're only knowledge of FB's worth is derived from the latest news articles you've read, what makes you think that you're better equipped to make money than any of the other people that also read those articles? Remember that trading is a zero-sum game. Someone has to be losing for you to be winning and when you're up against tons of people who understand the details of an internet company, you're starting off at a disadvantage.

I know you're thinking that you don't need to understand to ride the hype that will carry the price upwards. You may even be right. But the risk is just too great. It is my personal belief that this hype will create artificial inflation that is unjustified by the companies fundamentals. If that is the case, you may be setting yourself up for a nasty fall down the line. Perhaps sooner than you think.

I just want people to be careful. If you understand how Facebook makes its money and you feel comfortable taking on the risks than go for it. I just fear that too many new traders will be throwing money at this thing without any knowledge of how the market works.