Why do you want own Facebook’s (FB) stock? Do you even know why? Perhaps you want to own the stock because you
think you would be missing out on something if yid did not. Perhaps you feel it is a great investment
because you log on to your Facebook account several times a day. Either case does not resemble a strong
investment thesis.
I admittedly only buy stocks in companies that I use and
that have a business model that makes sense to me……the investor. I missed out on the wonderful IPO performance
of Google (GOOG) because I did not understand why advertisers pay for ad
space. I use Google and Facebook several
times a day, but in the last seven years I have never clicked on an ad, and I
probably never will. I understand people
must click on ads because companies continue to buy ad space. I do not, so I have trouble relating to a
business model that depends on behavior that I do not exhibit.
If you are considering purchasing shares of Facebook, then
you need clearly understand why you are doing so. I just purchased shares (going against my own
philosophy) because the valuation is very compelling to me. Facebook shares are now trading at roughly 15
times earnings and that is a very reasonable valuation for a growth
company. I did not buy Facebook because
I log on to my account every day. Heck
Facebook does not charge for their service.
I bought the stock because the financials make sense to me at this point
in time.
I believe a better approach, with the use of common sense,
would be to look at companies that offer products that people need to buy to be
able to access Facebook. Has anyone
heard of the iphone? The iphone is a
hard asset that people are buying like crazy so they can use the free Facebook
application. An investment in hardware is
one that I can relate to versus relying on companies to buy ad revenue, while
hoping for clicks that I do not make.
Sure the Google IPO was successful, but over the last five years Apple’s
(AAPL) stock price is up 394% while Google’s stock is up 29%. Or how about a company that supplies
technology to make many iphone features possible such as Qualcomm (QCOM). Qualcomm shares are up nearly 34% over the
last five years.
I’m not claiming Google or Facebook’s stocks are not a good
investment at this point in time, but I am claiming that investors should
understand why they want to own them. I
believe we have not been in the most robust economic environment, and yet Google
and Facebook are still pulling in a tremendous amount of advertising
dollars. I believe this trend will get
stronger as the global economy gets stronger in the future. That is why I bought Facebook shares, and why
you should be able to clearly state your position before buying shares for
yourself.
Thank you and good luck everyone!
Jon R. Orcutt, founder
of Allocation For Life, is an asset allocation strategist and author of “Master
the Markets with Mutual Funds: A Common Sense Guide To Investing Success”
