Looking Back at a Horrendous IPO

 | May 17, 2013 | 12:02 PM EDT  | Comments
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One year ago, Facebook (FB) came public. To me, it was an incredible opportunity for all, to get the public back into the stock market. The market has been my passion and my life's work, and I like to protect it, keep it as pristine as possible for individuals of all ages and all levels of wealth. I consider myself the equivalent of a park ranger attempting to conserve a national park for now and for all generations.

That's why I considered Facebook the equivalent of a manmade forest fire, an abomination of a deal that despoiled the park that I wanted so much to preserve for those who are missing out on this amazing mechanism that raises money for companies and helps tens of millions of American save up for retirement, for college or just for plain old fun.

By now we all know what happened. The public's demand for the stock overwhelmed the amount of stock available for sale, until the last minute, when a segment of the public, the tied-in hedge and mutual funds, learned that business had slowed. Facebook had been caught flatfooted by the amazing migration from desktop to mobile. The smartest guys in the room didn't see the adoption coming, so they were no longer able to make the projections that so many thought they could.

At the same time that the company was not able to deliver on its promises, the underwriters were uncertain about what to do themselves. The sophisticated investors who had knowledge of the slowdown were backing away just when the unsophisticated users of Facebook were stepping up. That created a distinctly 1999-2000 dot-com outcome, in which the tied-in institutions that got stock were eager to flip, and the retail investors chose to use market orders and had to settle on an artificially high price.

At the same time, the machines broke down, overwhelmed, despite what had to be the most telegraphed situation imaginable, one where both humans and computers should have been able to keep a steady hand on the tiller. Instead, the hand broke.

We can say that these were all innocent mistakes, but the combination of a greedy company with many of its shareholders who wanted out, mutual funds and hedge funds that had a chance to back out at the last minute, and the public that trusted an untrustworthy system caused a true despoiling of the stock market landscape.

Given that there have been so many insider-trading prosecutions, so many stories about the ruination that was the "flash crash," so many questions about the shady nature of high-frequency trading, Facebook amounted to a nail in the coffin for all who jumped into the stock market on that fated day.

Since then, I believe Facebook has come on strong with mobile offerings, and the adoption of the site remains robust. But it has become a very hated company with a very hated stock, in part because of what happened that day and in part because the company's execs have never regained the confidence of many institutional investors for their failure to see the lightning-fast transfer of users from the desktop to the mobile phone.

I think that's an unfair judgment. My Action Alerts PLUS charitable trust has been a buyer of Facebook as a long-term speculation. It's been unrewarding, but I believe that the company's execs are smart, and they will figure out how to monetize their still very popular instant institution.

But the market? Facebook made many people who have avoided stocks since the dot-com bomb realize that nothing has changed. They were simply there, once again, for the fleecing. The lack of respect for mom-and-pop investors revolts me. For these people, the initial public offering of Facebook was, indeed, a revolting development, one that left them thinking, "You see? It is indeed all rigged." And while I don't agree with that, I could not blame anyone, and can't blame anyone, for reaching that sad, sad conclusion.

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