Facebook: Like Lipstick on a Pig

08/06/2012 1:21 pm EST


Hubert Senters

Founder, HubertSenters.com

The hype surrounding Facebook (FB) turned south quickly alongside the stock price, says Hubert Senters, but those who believe in the stock may soon get a risk-controlled buy entry.

Well, the one IPO that has been in the news more than any other these days is Facebook (FB).  My guest today is Hubert Senters to talk about where you might want to buy that.  So Hubert, is there a good price for Facebook?

Lipstick on a pig is what we call this one.  So there is a good way to trade Facebook.  Hopefully, you did not get destroyed by buying the Facebook IPO.  I know Wall Street did you no favors by trying to talk you into going in on the IPO if you're a retailer investor.  I, for one, would like to apologize for the industry as a whole promoting it as much as they did, because it's kind of sick. 

There is a strategy that you can do.  If you look at all of the IPOs that have happened over this past year—Pandora (P), Groupon (GRPN), LinkedIn (LNKD)—every single one of them from the IPO price has sold off at least 50% before they bounced.  So just think of an IPO as if you're going to pick up something off of the clearance rack at 50%.  So Facebook had a high print of about $45.  So you want to pick it up at around $22.  That's where I would first try to purchase Facebook at. 

Now, I wouldn't get married to it.  I would definitely still use a stop loss on Facebook of about $18 to $20.  Okay, so if we're in it at $22, stop loss needs to either be at $18 or $20. Then your target to the upside would be around 30 to 33 points.

Alright, and then how about dipping my toe in with 100 shares?  You know, 500 shares?  What do you suggest there?  

I like that.  If you've got an allocation where you want to buy 500 shares of Facebook, buy 100 of them at $22. Then if it goes lower, you can buy another 100 and another 100 until you get to your 500 shares.  But still put a dedicated stop loss-or a line in the sand-that once it crosses it, you will get out of it.  You don't want to ride the thing to zero. 

Alright.  Brand new IPOs, do they react differently?  Do they behave differently then most?  What do I have to be aware of here? 

I think it really depends on the market environment.  Back in the 90's, it was easy.  You bought every IPO, and you just instantly made hundreds of thousands of dollars, because it was just easy. 

Right now, the market structure that you have in place, it is not kind to IPOs, and so every IPO has initially sold off at least half of their initial public offering before they bounced. 

Alright, and then finally, we all talk about the fact that people didn't make money, because they bought it at the high and lost money.  However, for Facebook it was great.  I mean, you don't want your share price to increase 100% on the first day.  It means you left money on the table.


For them it was probably, I mean, they want happy investors, but it was great. 

Sure, and then you also had the NASDAQ debacle, which you know they talked about that.  If you really like Facebook, and you kind of find yourself buying into the story, you can always buy it once it goes through that initial high that it printed at $45, even if you bought it at $22.  Or, if you just chicken out and don't buy it at $22, wait for it to go back up to $45.  I mean, Google (GOOG) and Apple (AAPL) didn't start at $700.  So you'll have plenty of time to get in on it. 

Hubert, thanks for your time.

Thank you.
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